Office leasing hits record levels in Manhattan
Although 2018 was rough for some segments of the real estate industry, it was a record-setting year for Manhattan’s office market. Leasing activity, which includes new deals and expansions, hit 32.4 million square feet, the highest annual total since 2000, according to CBRE. The gains were driven by a strong economy, expanding office employment and, until recently, a surging stock market. Financial services firms accounted for 28 percent of leasing activity. Co-working firms, which usually make up 2 to 4 percent of the market, had 18 percent of the leasing activity last year. Downtown leasing activity totaled 2.12 million square feet — a 192 percent increase from the same period in 2017, according to CBRE. While that growth came despite tenants such as Deutsche Bank relocating to Midtown, average Downtown asking rents were $60.23 per square foot, down 3 percent from 2017. CBRE noted that the Midtown market closed out 2018 in a strong spot, with 6.29 million square feet of leasing activity, its highest quarterly total since 2001, although average asking rents remained flat at $78.43 per square foot.
A titan rises, even as real estate fundraising slows
New York-based buyout giant the Blackstone Group is closing in on a massive real estate fund after a year in which real estate fundraising cooled. The private equity firm is targeting a $20 billion investment vehicle, according to the Wall Street Journal, which noted that such funds typically use $2 of debt for every dollar of equity, thereby giving the new fund about $60 billion in buying power. That’s more than all of the commercial real estate traded in Chicago, New York and San Francisco in 2018. According to research firm Preqin, 298 private real estate funds closed last year, raising a total of $118 billion. That amount was down from the $132 billion raised by 406 funds in 2017. Infrastructure, however, had a record year. Sixty-seven unlisted infrastructure funds raised $85 billion in 2018, up from the 94 funds that raised $75 billion in 2017. New York-based Global Infrastructure Partners is currently trying to raise a $20 billion infrastructure fund.
Brooklyn I-sales follow citywide turnaround
Brooklyn property trades have gone in the same direction as the city’s broader investment sales market: up. The borough saw $7.4 billion in total dollar volume last year, a 15 percent increase from 2017, according to TerraCRG’s annual Brooklyn report. That increase put an end to a two-year decline in dollar volume in the borough. Transaction volume continued to slide, though, with 1,197 deals closing throughout the year, a 12 percent drop from 2017 and a 37 percent drop from 2015 — the peak of the market. The largest sale of last year was Spring Creek Towers at 1255 Pennsylvania Avenue in East New York, which went for about $870 million. The building is part of Starrett City, which Brooksville Company and Rockpoint Group purchased from Starrett City Associates. That portfolio sale made up almost 12 percent of the borough’s total dollar volume last year. TerraCRG founder, Ofer Cohen, said that the Starrett City deal had a big impact on the Brooklyn sales market, but he noted that the borough generally sees at least one massive trade each year. “It was the Jehovah’s Witnesses portfolio, and now it’s Starrett City,” he said.
REITs poised to reap industrial, retail benefits
Real estate investment trusts had a tumultuous time in 2018 — but this year could be a good one thanks to industrial demand and an evolving retail sector, according to a report by the National Association of Real Estate Investment Trusts. The trade association said that growing online sales are increasing the need for logistics space, and rental rates are on the rise. Over the past four years, industrial rent growth has averaged 6 percent or more, said NAREIT, noting that most large spaces near major population centers and transportation hubs have already been developed. Going forward, less opportunity for new construction will see new facilities arise out of infill locations such as multistory warehouses and logistics centers. The retail sector should also improve as property owners progress in re-leasing space following a string of retail bankruptcies and many retailers choose to keep physical storefronts in addition to relying upon online sales, the NAREIT report said.