New York Charges Ahead in Recovery

NEW YORK CITY-Buoyed by a Post-Labor Day surge in leasing and investment sales activity, Manhattan is emerging from the recessionary valley ahead of most other markets, industry leaders said Thursday in the Power Panel opening this year’s RealShare New York. However, panelists said it’ll continue to be a gradual climb: at a time when there are questions about the possibility of either a V-shaped recovery or a W-shaped double-dip, CB Richard Ellis’ Mitch Rudin said, “We believe we’re past the middle of a long, flat U.”

Glenn Rufrano, Cushman & Wakefield’s president and CEO, noted that globally, not many industry members think the market will go up dramatically. Nor, he added, are there many who see a double dip in the offing. Rufrano predicted a “moderate” increase in activity. “And that moderate activity is enough” to create momentum, he said.

Compared to 2009, the uptick in activity hasn’t been moderate. “When Labor Day started, it was like a gun went off,” Rufrano said. New York City investment sales volume, while still way off from the peak, is on pace to reach $15 billion by year’s end, compared to $4 billion in ’09.

“We have continued to attract more capital than any other city,” said Rudin, president and CEO of the New York tri-state region at CBRE. One reason, he said, is that thanks to an increasingly diverse tenant base, “we’re not the one- or two-industry town like so many others.”

There’s also a diversity of product going hand-in-hand with that, a pair of trends demonstrated by Google’s reported plan to acquire the 2.9-million-square-foot 111 Eighth Ave., where it already occupies about 500,000 square feet, for about $2 billion. It’s a 78-year-old, 15-story Art Deco landmark, by the way, in a country where the average age of office stock is 29 years. “In almost any other city in the world, value is determined by age,” Rudin said. “Here, it’s determined by panache.”

Asked by moderator Steven Spinola, president of the Real Estate Board of New York, what sectors have been represented in leasing deals lately, industry attorney Jonathan Mechanic commented that “it’s a wide range of industries.” The pending Conde Nast deal for one million square feet at 1 World Trade Center represents “a game changer for Lower Manhattan and the World Trade Center campus,” said Mechanic, partner with Fried, Frank, Harris, Shriver & Jacobson.

That much-discussed relocation, along with Google’s apparently deepending commitment to the city’s Meatpacking District and law firm Proskauer Rose’s decision to anchor 11 Times Square, demonstrates “a lot of flexibility in where people locate,” Mechanic said. One issue has been with tenants deciding how much space they really need in the long term, he added, a point Rudin also made. Rudin disputed the perception that tenants have trended toward smaller spaces when renewing or relocating, saying that one-third of leases CBRE has handled lately have been for more space than previously.

In the view of Michael Katz, co-CEO at Sterling American Property, the market  has already bottomed out. Katz sits on a retail panel with the Urban Land Institute, and a recent meeting marked the first time in more than a year that participants weren’t talking about contraction or bankruptcies. Instead, they were talking in terms of expanding. He cited other encouraging signs: the resurgence of CMBS, the residential market stabilizing, banks lending  and the greater volume with which special servicers are handling distressed.

However, in common with other panelists throughout the half-day event, which was attended by more than 300 industry professionals, Katz cited the employment picture as the fly in the ointment. “You tell me how fast they’re hiring and I’ll tell you how fast we recover,” he said. “The key is jobs, jobs, jobs.”