Cushman & Wakefield’s Harbert: The End Is Nigh
Dana Rubinstein Jan. 12, 2010, 11:59 a.m.
First things first: Check out our awesome new offices!
So began real estate brokerage Cushman & Wakefield’s fourth-quarter breakfast on Tuesday, which in a marked break from tradition, took place in Cushman’s spiffy new offices on the seventh floor of Vornado’s 1290 Avenue of the Americas, rather than at Michael’s midtown eatery, where it’s been for time immemorial. (Whether this was an austerity measure or a sincere attempt to show off the firm’s new offices is anybody’s guess.)
In another marked break from tradition, instead of milky scrambled eggs and a sparse picking of fruit a la Michael’s, the breakfast featured little triangular-shaped stacks of French toast, granola and yogurt, and a huge bowl overflowing with ripe berries, served by handsome waiters from Thomas Preti Caterers.
All of which served as an enticing distraction from the meat of the presentation: New York’s commercial real estate market.
“This time, New York seems to be leading the way out of the recession,” said New York region COO Joseph Harbert, contrasting this meltdown to former recessions, in which New York’s recovery trailed that of the nation as a whole.
Mr. Harbert backed up his claim with the fact that New York has lost far, far fewer jobs than originally predicted – about 147,000, rather than, say, 300,000 — something he attributed in part to federal assistance in the form of TARP funds. That, in turn, means that New York has lost fewer office-using jobs than expected -– 6.7 percent from the peak, as compared to 7 percent nationwide.
All that said, new leasing activity — a number that excludes plain old renewals -– was far from impressive. In 2009, Manhattan saw 16.3 million square feet of new leases. Compare that to 2008 (19.1 million square feet), 2007 (23.6 million square feet), and 2006 (27.1 million). Even worse, compare that to the last recession in 2001, a year that saw 18.9 million square feet in new leases.
More bad indicators?
“This is the most negative slide you will see,” said Mr. Harbert, referring to a bar graph entitled, “Comparative Direct Net Absorption.” He pointed to a long, green bar dipping inches below the X axis. Its meaning? In 2009, there was 11.6 million square feet of negative absorption, which brought the Manhattan vacancy rate to 11.1 percent. That negative absorption, said Mr. Harbert, equaled the negative absorption of the last 13 years combined. Even worse, one downtown broker predicted the vacancy rate there would soar to 15.75 percent.
And investment sales? Don’t ask. Last year, the trading of buildings was, essentially, “nonexistent,” said Mr. Harbert. Though investment sales broker Jon Caplan reassured the room that, “There is a wave of capital coming to the U.S. from all over the world,” and, “New York is the number one target market.”
Now for the good news. When you include renewal activity, with tenants extending their current leases rather than relocating, 2009 saw 35 deals of more than 100,000 square feet in size. In 2008, there were only 32; in 2007, only 30.
Mr. Harbert also showed a slide depicting midtown leasing activity by quarter over recent years, and said the bars depicted something of an “inverted salad bowl.” Not a V, which would be ideal. But way better than, say, a flat line, or a downward sloping line with no end in sight.
Also on the upside! Retail is doing comparatively well, what with recent big transactions in Times Square (Disney) and Sixth Avenue (Trader Joe’s). According to retail broker Brad Mendelson, that’s because New York, for all its peccadilloes, remains the United States’ tourist mecca.