From Manhattan’s hot office market to a multifamily malaise, a look at the biggest trends
Manhattan office leasing sets records
On the coattails of another strong year for commercial office leasing in Manhattan, the start of 2019 saw 9.07 million square feet leased, according to data provided by Colliers International. Those first-quarter figures were a 20 percent year-over-year increase from 2018. “Fears of an interest rate increase have abated, and there is no shortage of available capital, foreign and domestic, interested in New York City assets,” said David Amsterdam, co-head of U.S. capital markets at Colliers. Manhattan’s Plaza District took the office leasing lead for the fifth consecutive quarter, with 1.61 million square feet taken by tenants between January and March. Downtown leasing volume doubled, to 2.56 million square feet, a 6.4 percent increase over the fourth quarter of 2018. That spike was partly due to the We Company’s 201,000-square-foot lease at Jack Resnick & Sons’ 199 Water Street. A separate analysis by Avison Young found that asking rents in Manhattan also hit a record $80.36 per square foot, a 3.5 percent year-over-year increase.
Brooklyn’s retail rents are flattening
Retail rents in Brooklyn are dropping throughout most of the borough’s prime neighborhoods, according to the Real Estate Board of New York. A market report analyzed 17 retail corridors and found that average asking rents for ground floor retail had fallen year-over-year in 10 of them — but rose in only five, REBNY said. More established areas in Brooklyn have watched rents soften as rents in up-and-coming locales have been climbing the ranks thanks to new residential and commercial developments. REBNY’s winter report, which was released in April, presented a much more definitive downward trend than a previous one last summer. “Brooklyn has been experiencing a correction in retail rents since they plateaued in early 2016 to early 2018,” said a statement from retail broker Peter Levitan. “They are now starting to flatten.” He added that deal volumes have increased over the past two quarters as rents adjust to tenants’ expectations. The corridor with the greatest change was Montague Street, between Hicks Street and Cadman Plaza in Brooklyn Heights, where asking rents fell 50 percent, from $145 to $72 per square foot.
Multifamily deals start to cool
Uncertainty over looming changes to rent laws in Albany has put a chill on the city’s multifamily market, which saw $2 billion worth of activity across 75 deals and 110 buildings in the first quarter, according to Ariel Property Advisors. Those numbers were a 22 percent drop in dollar volume, a 43 percent decrease in transaction volume and a 50 percent dip in building volume compared to the first quarter of 2018. They also represented the lowest number of multifamily transactions in the city since the third quarter of 2010. The first quarter also saw just 127 residential rental buildings change hands, well below the 243 that sold a year before, as dollar volume fell 43 percent, from $2.3 to $1.3 billion, according to B6 Real Estate Advisors. Still, brokers see this as a temporary blip. “Most people are in a holding pattern until the laws get designed and people figure out what’s going on,” said Steven Vegh of Westwood Realty Associates. “I think once they pass whatever will pass, it will stabilize,” he added. Changes to New York’s rent regulation rules have been expected since November, when Democrats took control of the state government for the first time in years.
New York no longer No. 1 in building costs
San Francisco has surpassed New York City as the most expensive place in the world for construction with an average building cost of $417 per square foot, according to project management firm Turner & Townsend. Those costs are expected to increase 6 percent in the next year. In New York, the average building cost was $368 per square foot, up slightly from last year’s $362 per square foot. Those costs are expected to increase 3 percent in the next year. At $101.30 per hour, New York can still claim to having the highest labor costs in the U.S. markets surveyed by Turner & Townsend. San Francisco trailed New York in that metric at $90 per hour, followed by Seattle ($75.50) and Chicago ($69.60). “The big challenge for the… wider U.S. construction market is meeting this demand in the face of import tariff talks, escalating materials costs and a shrinking skilled labor force,” said a statement from Turner & Townsend managing director John Robbins.