Midtown office leasing hits 12-year high
The Midtown office market is having its most active year since 2006, with a total of 13.9 million square feet leased in the first three quarters of the year, according to CBRE. Of that total, 4.4 million square feet were added in the third quarter — the sixth consecutive quarter to surpass 4 million square feet leased. Asking rents in Midtown stood at $74.41 per square foot, up 2 percent from the previous quarter, but down 3 percent from last year. In Midtown South, asking rents were at $77.15 per square foot, down 2 percent from the previous quarter, but up 7 percent year-over-year. “New York’s always been the financial capital, but now it’s become an indispensable location for a wide variety of other industries,” particularly tech, said Will Silverman, a managing director at the commercial brokerage Hodges Ward Elliott. The diverse tenant pool in New York and the robust U.S. economy have contributed to the strength of Midtown’s office market, he added.
Commercial landlords prepare for L train shutdown
With the L train shutdown between Manhattan and Brooklyn looming, residential landlords are feeling the heat — but commercial landlords are largely divided. Matt Cosentino, a partner at the Brooklyn commercial brokerage TerraCRG, said neighborhoods such as Williamsburg and Bushwick have enough residents who live and work there to support the retail. “A lot of the retail around the L is amenity-related for people who live in the area,” he noted. “Because the L train is not shutting down in those areas, [they] would be less affected.” And while anecdotal evidence points to some landlords slashing prices as they gear up for shutdown in April 2019, data on the impacts of the impending service change is inconclusive, reports from TerraCRG and CBRE show. North Brooklyn, which includes Williamsburg, saw a seven percent increase in the dollar volume of investment sales in the first half of 2018, per TerraCRG. But that increase was after dollar volume in the area fell by more than half in 2017 during a borough-wide investment slump. And although office leasing was particularly muted in the Williamsburg-Greenpoint area in the third quarter, per CBRE, asking rents stayed flat for most Brooklyn submarkets during the same period (see related story on page 62).
Investors prefer Brooklyn to Manhattan
Real estate investors are high on Brooklyn. The borough ranked as the second most desirable market for property investment in the U.S. and Canada, according to an annual ranking from PricewaterhouseCoopers and Urban Land Institute. Brooklyn jumped to second place from 30th place last year, and its rise is in line with investors’ interest in markets adjacent to gateway cities across the nation, the report noted. In addition, investors find Brooklyn attractive because of consistent population growth, employment growth and potential for urban industrial development, Mitch Roschelle, a partner at PwC, told The Real Deal. “There was a belief that the [Brooklyn] market is underserved in terms of industrial, slightly underserved in retail and potentially underserved in office.” However, Roschelle said Brooklyn’s inclusion in the top 10 is surprising because it’s less affordable than other places on the list, including Texas’ Dallas-Fort Worth metro area, which took the top spot for a second year in a row. The ranking was based on a survey with more than 2,400 respondents.
Manhattan’s hotel glut is boosting sales
The flood of new hotels in Manhattan means it could be a good time to buy them thanks to the supply of new rooms trailing demand. The development boom has increased the number of hotels in the borough by 57 percent over the past decade, according to data from STR. In 2017, there were 115,532 rooms and 632 hotels in Manhattan — up from 73,692 hotel rooms and 357 hotels in 2007. And more than 20,000 additional rooms will be added to the market by 2020, data from the marketing and tourism organization NYC & Company shows. Although that oversaturation has put pressure on room rates, there have been slight increases in both pricing and RevPAR this year, according to PricewaterhouseCoopers. As a result of the glut of hotels and modest price growth, there have been some sweet deals. The real estate investment firm Arden Group is reportedly in contract to buy the ground lease of the Viceroy Hotel for $41 million, less than a third of the price it sold for in 2013, for example, and Rotem Rosen’s MRR Development is in contract to buy a Lower East Side hotel for $162 million after the property entered the market for $176 million in 2017 (see related story on page 106).