Harbert: “Both 2014 and 2015 were record years for property sales, partially due to pent-up demand from the recession. As a result of this, and the uncertainty surrounding tax legislation in the US, sellers have been somewhat hesitant to put their properties on the market in 2017.”

NEW YORK—While there has been a fairly dramatic decrease in sales volume this year due to a disconnect between buyers and sellers, there are pockets of strength and the outlook is positive for next year, Colliers International’s eastern region president Joe Harbert tells GlobeSt.com. We sat down with Harbert to chat about the current state of the eastern region, how landlords are attracting top tenants and the leasing outlook for 2018.

GlobeSt.com: How would you define the current state of the eastern region of the CRE market?

Harbert: What we are seeing in 2017 is a decrease in sales volume that’s been fairly dramatic. In the last month of the year, people are usually scrambling to close deals before year end, but fewer deals are being closed now, and the sales volume is about 50% down in certain pockets. Even though there are low interest rates and the financing market is favorable, there is not a lot of product for sale.

Both 2014 and 2015 were record years for the sale of property, partially due to pent-up demand from the recession. Now, sellers are hesitant to put their properties on the market. Buyers are thinking we’re deep into this recovery, which is creating a disconnect with sellers: the buyers are not there at the prices the sellers are expecting like they were back in 2014/2015.

Moreover, we still don’t know what the tax picture is going to be in 2018. People have been waiting for the other shoe to drop on tax treatment for CRE and the sale of property has been impacted year to date by this. The good news is that the US economy is still strong—not as strong as everybody would like—unemployment and interest rates are low, and there are lots of positives in the market. The capital markets are also seeing more placement of debt—refinancing. And owners are seeking new equity partners to mitigate risk and free up capital for investment.

GlobeSt.com: How are landlords attracting top tenants today?

Harbert: People want to be in spaces that will help retain current employees and attract new ones. Because the market is competitive, landlords have started putting more amenities in buildings to make them more competitive and appealing to prospective tenants. Some buildings have all kinds of services, e.g., conference space in the building so you can rent the conference space for a fee versus paying rent for unused conference facility every day in your own space. There are also co-working spaces in select buildings, which is good for companies that don’t want to commit to more space permanently if their business doesn’t grow as planned. We’re seeing a bit more concierge-type services in buildings, like bike racks and health clubs, nice amenities for employees.

Also, in New York City in particular, there has been a substantial rise in concessions on the part of owners, including a period of free rent and substantial work allowances. Most tenants amortize that out over the course of the deal, and there are real economic benefits. Those benefits have increased dramatically over the last 10 years. Landlords are improving the economics by offering these concessions.

As far as the office-leasing market goes, it’s still strong. It’s hard to find space in Boston; there’s 9% to 10% availability in NYC, although rents are a little softer than they were 12 months ago. There’s strong demand for space; it’s been a good leasing year in Manhattan. Florida is seeing a tremendous amount of activity on all fronts, and the market fundamentals there are strong, but there are not many properties for sale. Uncertainty has put a little pause in the marketplace there as well.

The industrial market is on fire everywhere. There’s not enough space and a tremendous demand for it, which is good for the economy. The demand is partly driven by e-commerce, which prioritizes warehousing close to delivery points to minimize delivery time. Rents and sales prices are up in that sector, and it’s a vibrant part of the economy.

As for retail, pronouncements of the death of the sector have been terribly premature. Stores are facing challenges, but we think they’re going to adapt. Price adjustments are being made on retail. There’s a place for brick-and-mortar and a place for e-commerce. Anybody with a computer has probably ordered something online in the last year but let’s bet that they went to a store as well. The overall market for retail will be adjusting to e-commerce for the next year or so, and then companies will figure it out. Big-box retail is in the throes of change and trouble, though—there’s still a lot of shakeouts in that industry.  On the other hand, food, entertainment, cosmetics and destination-service retail are thriving.

GlobeSt.com: What’s your outlook on leasing for 2018?

Harbert: We will see a little softening in pricing on office rents in pockets of the New York market. It’s a segmented market: there are some areas where prices are not going down because people want to be there, like Midtown South and the new construction with Hudson Yards; and there are other areas where people are leaving, like Midtown itself. Why do tenants move to the West Side? There are fresh, new buildings with lots of amenities; they are more efficient because of the floorplates and the column spacing, making it less expensive for a tenant as they can achieve greater density. Tenants will leave behind between eight and ten million square feet in Midtown buildings that are not as advanced. As a result, many Midtown landlords will continue to be more flexible on the economics of deals and will invest to modernize their buildings.

Boston, on the other hand, has a shortage of space. Everybody wants to be in Boston, whether it’s for education, medical or tech—and Cambridge is a hot tech center. Boston will continue to thrive next year, and we predict there will be no softening in pricing.

DC has mostly recovered from the recession; it didn’t suffer as much as other regions. Despite commentary that we’re going to drain the swamp, there’s been a lot of activity with law firms and lobbying firms in DC.

Atlanta is still vibrant, and south Florida is still in expansion mode. There’s a positive outlook for the east coast overall; I’m optimistic for next year.

GlobeSt.com: What else should our readers know about CRE expectations for 2018?

Harbert: We continue to see a lot of interest on the part of foreign buyers in the US. So far, this hasn’t fallen off because of the politics in the US, which are not as globalist as they once were. The US is still seen as a safe haven for capital; there is continued interest in placing capital here from Japan, Germany and the Middle East, and the deals are competitive. It takes patient money. It’s interesting that foreign buyers continue to be bullish in the US despite our current political issues.