New York, New York: if you can make it here, you can skew the numbers in the rest of the country. Nowhere is that more evident than in America’s commercial real estate sector, which is being led by Manhattan’s tight office rental market.
For example, New York led the U.S. in terms of rent increases, coming out on top in a Reis Inc. survey of 79 large office markets. New York rents climbed 6.5 percent in the first quarter, contrasted with a modest jump of 2.8 percent nationwide, according to the New York-based real-estate research firm.
In terms of actual asking rents, New York averaged $61.52 per square foot in the first quarter, while the rest of the country’s average was $24.58 per square foot, according to the brokerage firm CB Richard Ellis. In keeping with the Reis Inc. findings, both numbers saw an improvement from the prior quarter, but national rents show gains of only 39 cents a square foot from the prior quarter, while Manhattan rents have increased by almost $7 over the same period.
According to CB Richard Ellis’s latest Office Vacancy Index report covering the first quarter, New York leads a trend found in top-choice markets. “Many markets are enjoying their lowest vacancy rates in five years,” noted the report. “This, combined with relatively modest levels of new construction, and a drive by owners to increase operating income, has been pushing rents rapidly higher in top-quality locations.”
Manhattan remained the tightest market in the U.S. with vacancy rates of 5.2 percent, down from 5.7 percent in the prior quarter. Fort Lauderdale came in second at 7.3 percent, followed by Miami, Honolulu and Orlando.
Splitting Manhattan into two markets per the CB Richard Ellis Vacancy Index, Charlotte, N.C., takes the top spot of the market at 3.1 percent, while Midtown Manhattan follows closely at 4.3 percent, and Downtown ties with Boston at 7.7 percent.
While the national vacancy rate fell from 12.3 percent to 10.8 percent from the first quarter of 2006 to the first quarter of this year, vacancy rates for Downtown Manhattan, for example, have fallen even more significantly, reaching this year’s 7.7 percent from 10.5 percent last year.
In contrast, Detroit and Dallas continued to suffer. Detroit has the highest vacancy rate nationally, 24.4 percent in the first quarter, down from 25.9 percent the previous year. Dallas, meanwhile, continues to build, and overcapacity drove the vacancy rate from 19.6 percent in the first quarter of 2006 to 21.4 percent in the first quarter of this year.
In building sales, NYC outpaces U.S.
The data boasts, but it doesn’t lie. Last month’s figures from Real Capital Analytics, a firm that tracks commercial property values, shows that across the board, New York City — and Manhattan in particular — is outpacing the rest of the country when it comes to building sales.
Manhattan has seen the price of its buildings increase at almost double the rate of the rest of the nation in the last three years.
The average price per square foot nationally for building sales has risen by more than 75 percent in the last three years, to $293 per square foot.
Manhattan easily trumped that. Here prices have accelerated by 140 percent, jumping from $300 per square foot in June 2004 to $724 last month.
The figures from Real Capital Analytics only tracked buildings selling for more than $5 million.
While the volume of building sales is falling around the U.S. as a whole, total sales in the city are on the rise.
Nationally, the total dollar volume of transactions fell by almost 14 percent over the past 12 months, from $136 billion in June 2006 to $117 billion last month.
Manhattan, on the other hand, saw sales heat up.
Indeed, there was a surge of more than 8.5 percent in dollar volume of transaction between June 2006 and this June. Midtown Manhattan performed best. Deals there rose 15 percent in terms of the volume of sales, moving from $15.2 billion to almost $17.5 billion over the past year.
How did this happen? Low treasury yields, volatility in global equities and a fast-growing, commercial-backed mortgage security market helped boost the availability of capital to buyers. If there’s any brake at all on the booming market, it will be applied by lenders worried by the rising prices and the availability of tenants who can afford those ever-heightening rents.
In terms of market fundamentals, however, continued job growth has driven rents and building prices up.
Overall, job growth in the private sector in New York grew by 2 percent, or 60,600 new jobs, in the year since January 2006, slightly outpacing the national growth rate of 1.9 percent, which equaled 2.6 million net positions added across the country.
In New York City, hiring was led by the financial sector. Wall Street firms, medium-sized banks and hedge funds led the hiring charge, according to the Federal Reserve. And more staff means more office space. The geographic desirability of Midtown that has driven unprecedented sale prices (surpassing $1,200 a square foot) shows no signs of the slowdown evident in other parts of the country.