Manhattan's Overvalued, CRE Execs Here Say

NEW YORK CITY-Is Manhattan commercial property overvalued? Most CRE executives here would say yes, judging from a survey conducted by Marks Paneth & Schron. Fifty-four percent of those surveyed would put Manhattan real estate in the overvalued category as compared with other major global cities, a sentiment in line with results from MP&S's first such survey six months prior.

Asked why this is the case, most local CRE executives would attribute it in part to Manhattan's appeal for global investors. Eighty-two percent of respondents said foreign investment has an influence on commercial property values in Manhattan, with 47% saying it has a great deal of influence.

And if pricing is in line with peak-level values, most of the 100-plus executives surveyed by MP&S think rents haven't recovered at the same pace. Only 15% said rents for Manhattan office and other commercial sectors are returning to 2007 levels now. And only 12% believe they will do so in 2014. Thirty-two percent think it will happen in 2016 or beyond, if ever.

In fact, the neighborhood most frequently cited in the MP&S summer survey as the next hot area for rent growth isn't even in Manhattan. Seventeen percent of the executives cited Downtown Brooklyn as the place where office rents will skyrocket next.

"This could be another 'prestige' breakthrough for Brooklyn,” says William H. Jennings, partner in charge of the real estate group at MP&S. “Many people already think it's much 'cooler' to live in Brooklyn than Manhattan. It may soon be the 'hot' place to office.”

In the survey conducted six months prior, it was the Garment Center that led the way, with 24% of respondents predicting it would be the next leader in rent growth. That neighborhood and Hell's Kitchen are now tied for second place with 16% for each.

Thirteen percent of respondents predicted the Financial District would see the fastest rent growth, and 10% chose the Grand Central area. Lower Manhattan's outlook does appear to be improving, though, in the eyes of the executives surveyed by MP&S. Just 9% said commercial property values Downtown have been permanently affected by Superstorm Sandy, compared with 19% who expressed this view soon after the storm sent surges through Lower Manhattan's streets.

Other neighborhoods generally perceived as “emerging” didn't garner as much confidence, according to MP&S. Seven percent of respondents chose Long Island City, while 8% went for DUMBO and 6% picked Harlem as the next hot office areas.

The survey also asked which major development project will have the most positive, long-term impact on property values in their respective neighborhoods. Executives were most likely to choose the Hudson Yards project on the Far West Side, with 34% giving the Related Cos.' mega-project a thumbs-up in this regard. It was followed by the Second Avenue Subway (28%), Long Island Rail Road access to Grand Central Terminal (20%) and the World Trade Center redevelopment (10%).

Respondents to the survey included owners and managers of commercial property; commercial real estate brokers and agents; and attorneys and accountants specializing in the sector. Interviews were completed between May 6 and July 1.