NY Commercial Market 'Booming Along'

NEW YORK CITY—While a majority of local real estate professionals and investors believe the city's commercial real estate market is in the latter stages—or near the peak—of a bull market, they also contend that the city continues to be a highly desirable place for investment, according to new research.

The decision to not hike interest rates by the Federal Open Market Committee at its meeting last month bolsters investor confidence in the US real estate market and specifically in the New York City commercial market, which the Royal Institution of Chartered Surveyors  characterizes as “booming.”

According to the RICS Q2 Global Commercial Property Report, the city scored the highest rate of respondents who describe market valuations in their city as “expensive.” A total of 83% of New York City respondents believe property valuations in the Big Apple are pricey. RICS also reports that survey respondents believe the New York City market is in the mid-upturn (67%) stage or peaking (33%).

"The residential and office markets are very strong in New York City, in terms of absorption, rent growth and vacancy,” with significant demand from both domestic and international investors, says Thomas Justin, EVP and principal of the Weitzman Group. “The strength of the market, and resultant rise in rents and prices, is pushing growth into the outer boroughs, particularly Brooklyn, where the property market is 'on fire.'”

Justin adds that the technology sector is enjoying explosive growth that has more than offset a slowdown in financial services, He also says he is concerned that the very high end of the condominium market could be overbuilt in the future.

Alice DiMarzio, senior managing director, NGKF Capital Markets, says, “Since the economic recovery, the New York City real estate market has been driven by high-end luxury condo development, moving that market from a price of $1,200-per-square-foot in 2007 to more than $4,600-per-square-foot in some new properties today.” She adds that land prices have also risen sharply that has impacted both new hotel and office development.

DiMarzio believes that there is enormous potential in the proposed rezoning of a 73-block area surrounding Grand Central Terminal. “What we will see when the rezoning is finalized is active trading in B Class older office product that can be vacated over time, demolished and replaced by new state-of-the art, larger properties. The smart local money will place their long-term bets on East Midtown new construction, and hopefully, some foreign funds will do the same,” she says.

The New York City Department of Planning predicts that the proposed rezoning would replace approximately 10 million square feet of aging commercial space and add approximately 4.5 million square feet of commercial space to the city's available inventory.