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OFFICE
New York City Q2/19
Largest Pipeline in a Decade to Test Tight Office
Market in the Big Apple Office 2019 Forecast
Y-O-Y Average
Dynamic economy generating robust demand. Amid steady job growth Metro Vacancy Basis Point Asking Y-O-Y
Change
in the New York City metro, office-using firms have been rapidly leasing Change Rent
new office space. Net absorption registered more than 4.4 million square
feet in 2018, the highest pace since the high-water mark reached in 2014. Bronx 8.8% 60 $37.25 1.4%
When combined with a muted pipeline that has crossed 4 million square
feet just twice in the past five years, vacancy has remained subdued,
Brooklyn 11.9% 70 $39.00 1.8%
resting consistently below 12 percent since 2012. These factors have
contributed to the largest office construction pipeline in over a decade,
with more than 14.7 million square feet of space expected to be delivered Manhattan 11.0% 10 $66.50 3.0%
before year’s end. As a result, rent gains have proved more marginal than
previous years, barely outpacing the rate of inflation in most boroughs
as owners opt to lock up longer leases on more tenant-friendly terms to Queens 11.4% -60 $37.00 1.7%
avoid potential upswings in vacancy.
Brooklyn and Long Island City are the primary targets, benefiting
7.0%
from an existing corporate presence and stable tenant profile.
5.5% • Transactions in the Bronx and Staten Island are increasingly driven
by opportunistic deal flow due to the limited amount of existing
4.0% inventory. These special situations can provide an increase in returns,
* 01 03 05 07 09 11 13 15 17 19*
primarily through a combination of capital appreciation, better build-
ing management and entry cap rate.
Sales Trends
Sales Price Growth
* Cap rates trailing 12 months through 1Q19
per Square Feet
$800 36%
Sources: CoStar Group, Inc.; Real Capital Analytics
Year-over-Y
$600 18%
MANHATTAN
Employment Trends
EMPLOYMENT
Local Office Yield Trends
Employment Growth Office-Using Emp. Growth 2.1% increase in total employment Y-O-Y
6% 10.0%
• Over the past 12 months, New York City employers generated
Year-over-Year Change
3% 8.5% 93,300 new jobs, expanding total employment by 2.1 percent. This
Average Rate
represents a pace roughly in line with the prior year, when 96,400
0% 7.0% positions were added.
10
5.2 million square feet completed Y-O-Y
Average Price per Square Feet
$800 36%
Year-over-Year Growth
• Over the past year, 5.2 million square feet of office space came
Square Feet (millions)
5 $600 18%
online, consisting primarily of 3 World Trade Center in Downtown
Manhattan and 55 Hudson Yards in Midtown.
0 $400 0%
• This year, more than 8.3 million square feet is expected to be
-5 $200 completed. The pipeline will be led -18%
by 30 and 55 Hudson Yards and
One Manhattan West. Together, these three projects will inject
-10 $0 -36%
09 10 11 12 13 14 15 16 17 18 19* 09 10 more
11 than136.37
12 14 million
15 16 square
17 18 feet
19* in Midtown Manhattan.
13% • Net absorption reached 4.9 million square feet during the past
Vacancy Rate
12%
• The average asking rent advanced 1.1 percent to $64.61 per
0% square foot, powered by robust improvement in Uptown and
Downtown Manhattan.
-12%
• Rent growth was propelled by Class A buildings, where prices rose 2.4
percent to $70.51 per square foot. Midtown South posted the stron-
-24%
09 10 11 12 13 14 15 16 17 18 19* gest gain, vaulting 6.4 percent to $81.89 per square foot.
2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*
3% to mid-4 percent
8.5% range.
Average Rate
Uptown 5.1% -160 $43.36 19.3% • The average price per square foot dipped marginally toward $950,
0% 7.0%
underpinned by moderately lower prices in Midtown Manhattan.
Greater deal flow near Grand Central skewed the average downward.
-3% 5.5%
Outlook: A softer pricing structure has begun to form as investors fret
Midtown South -6% 9.7% -60 $65.48 0.2% over the tremendous
4.0% amount of incoming supply. How the new supply is
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*
absorbed will determine market conditions in the coming months.
10
Average Price per Square Feet
$800 36%
Year-over-Year Growth
Square Feet (millions)
5 $600 18%
Midtown 11.8% 40 $67.84 0.5%
0 $400 0%
-5 $200 -18%
Manhattan 11.2% -10 $64.61 1.1%
-10 $0 -36%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
14%
BROOKLYN
$600
Year-over-Year Growth
Square Feet (millions)
2
• Development contracted meaningfully over the past year, falling
$450 15%
from more than 1.24 million square feet to roughly 563,000 square
0 feet as builders slowed construction throughout the borough.
$300 0%
13%
• The average asking rent vaulted 6.7 percent to $41.80 per square
0% foot as firms vacated higher-quality spaces.
• Class A average asking rents fell 5.1 percent to $54.03 per square foot,
-13%
while Class B and C properties recorded a 13.9 percent gain to $37.57
per square foot. Tenants remain extremely price conscious as rising
-26%
09 10 11 12 13 14 15 16 17 18 19* rents encourage property turnover.
2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*
• The average price per square foot reached above $415, underpinned by
Downtown Brooklyn0% 9.2% 120 $48.70 -0.6%
locations in Downtown Brooklyn. South Brooklyn properties posted
the strongest appreciation.
-3%
Outlook: Relatively higher cap rates and lower rental rates continue to
-6% draw investors from Manhattan in search of greater returns.
09 10 11 12 13 14 15 16 17 18 19*
North Brooklyn 11.1% -110 $35.44 -5.5%
$600 30%
South Brooklyn 17.3% 440 $35.32 41.7%
Year-over-Year Growth
Square Feet (millions)
2
$450 15%
0
$300 0%
-2 $150 -15%
Brooklyn 12.1% 170 $41.80 6.7%
-4 $0 -30%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
16%
QUEENS 1Q19 – 12-Month Period
Vacancy Rate
the project pipeline dried up.
0 8%
• More than 1.88 million square feet of office space is currently
underway in the borough, underpinned by The JACX, a mixed-use -700 6%
office and retail project with more than 1.1 million square feet of
-1,400 4%
creative office space.
15 16 17 18 19*
(thousands)
Heights1,400
and Flushing. Cap rates were broadly in the mid-5
12%
quarter of 2018 at 8.2 percent.
(thousands)
percent 150
range. 10%
Vacancy
700 10%
• The average price per square foot reached the mid-$350s as dollar
1.3%
Vacancy
decrease in average asking rent Y-O-Y
FeetFeet
100 8%
volume soared above $660 million.
RateRate
0 8%
Square
• The average asking rent declined 1.3 percent to $36.52 per
50 6%
Square
square foot, propelled by an 11.9 percent decline in Class B and C
-700 6%
properties to $26.84 per square foot. 0 4%
-1,400 15 16 17 18 19* 4%
15 16 17 18 19*
STATEN ISLAND
CONSTRUCTION Supply and Demand
Completions Absorption Vacancy
0 square feet completed Y-O-Y
200 12%
Square Feet (thousands)
• Over the past year, developers completed no new space, a trend that
has been in place since 38,000 square feet was brought to market in 150 10%
Vacancy Rate
the third quarter of 2016.
100 8%
• Two projects containing roughly 360,000 square feet of office space
will be delivered this year, headlined by the Corporate Commons III 50 6%
project at 1110 South Ave.
0 4%
15 16 17 18 19*
• The average asking rent slipped 2.6 percent to $24.79 per square
foot as tenants absorbed the highest-quality space in the market.
CONSTRUCTION
Supply and Demand Supply and Demand
Completions Absorption Vacancy Completions Absorption Vacancy
51,000 square feet completed Y-O-Y
1,400 12% 600 16%
Square Feet (thousands)
Vacancy Rate
Vacancy Rate
ending the construction drought in place since the second quarter
0 8% 300 8%
of 2016.
Vacancy Rate
• The average price per square foot advanced broadly higher, reach-
Vacancy Rate
Vacancy Rate
0.1%
100 decrease in average asking rent Y-O-Y
0
8%
8%
500
ing the mid-$240
300
16%
range as buyers bid for assets with cap rates
8% in the
• The average asking rent ticked down slightly, sliding 0.1 percent low- to mid-6 percent range.
50 6% 0 14%
to $35.60-700
per square foot, even as demand remained exceptional.
6% 150 4%
0 4% -500 12%
-1,400 4% 0 15 16 17 18 19* 0%
15 16 17 18 19*
15 16 17 18 19* 15 16 17 18 19*
WESTCHESTER COUNTY
CONSTRUCTION
Supply and Demand Supply and Demand
Completions Absorption Vacancy Completions Absorption Vacancy
0 square feet completed Y-O-Y
200 12% 1,500 20%
Square Feet (thousands)
Vacancy Rate
30,000 square feet came online in the second quarter of 2017.
100 8% 500 16%
• The future pipeline remains sparse, with one project in
Valhalla representing
50 the only planned completion of 2019.
6%The 0 14%
122,000-square-foot offering will be located at 350 Columbus Ave.,
with Pepsi pre-leasing
0 the entire space. 4% -500 12%
15 16 17 18 19* 15 16 17 18 19*
September, coupled with potential cuts to the Fed funds rate in the
75% Nat'l Bank/Int'l Bank
Reg'l/Local Bank second half of the year, highlight the shift in Fed policy. As a result,
50% CMBS long-term interest rates are likely to remain subdued, with Fed
Financial/Insurance policy leaning toward accommodation.
Pvt/Other
25%
Price: $250
J.D. Parker Executive Vice President of Investment Brokerage Mark
260 Madison Avenue 5th Floor New York, NY 10016
275 Ban
(212) 430-5100 | jd.parker@marcusmillichap.com
Ottawa
© Marcus & Millichap 2019 | www.MarcusMillichap.com
John Krueger Vice President/Regional Manager | Manhattan (613) 36
(212) 430-5100 | john.krueger@marcusmillichap.com
Ryan
2398 E