Robert Sammons - New York City market in recovery mode

Crises abound around the globe today. From here in the U.S. and also in the EU there are a myriad of financial problems that remain well after the official end of the recession - more specifically, significant budget deficits plaguing various European countries and U.S. What we have learned from the recessions of the late 1980s/early 1990s and in the early 2000s after the tragedy of 9/11 is that N.Y.C. has often proven resilient in downturns and recovers more quickly than most forecasters predict. For N.Y.C., this last recession was relatively short. Historically, this market is last into a downturn and last out of a downturn. In the most recent recession, it was last in and first out. In fact, U.S. peak-to-trough private sector job losses lasted 25 months while N.Y.C. peak-to-trough losses came in at just under 12 months. Three factors contributed to N.Y.C.'s improved position throughout this last recession: first, the local economy is more diverse than in the past with a greater number of jobs in office and non-office sector. Second, N.Y.C. is a much safer and cleaner place than it was ten years ago and more people strongly desire to live, work and visit here. Additionally, at the outset of the recession the federal government's financial bail-out propped-up many of the financial services firms in N.Y.C. and kept the job cuts well below what was predicted. Since jobs bottomed out in August 2009, the N.Y.C. private sector has regained 79,200 positions. Most importantly to commercial real estate, there have been 35,400 positions added in office-related fields over that time—or 37% of the total office jobs lost. Unfortunately, this is not yet close to a full recovery but N.Y.C. is making great strides in that direction. After remaining on the sideline during the recession, existing and new tenants have been flocking back to the market. In Manhattan alone, there are 400 new tenants in the market, most already with locations in N.Y.C., looking for a total of just over 27 million s/f of space. Not all transactions will take place in 2011 - many of these tenants have lease expirations in 2012 and 2013 and have begun their search in earnest today, both because of size requirements and a desire to "hit" the market while rents remain somewhat depressed. The majority of these tenants are bound to renew in place. Looking ahead, the forecast for the N.Y.C. commercial real estate market for the rest of 2011 is for continued steady recovery. Our current projections for the overall Manhattan market (all classes) calls for a further 130 basis points drop in the vacancy rate while the average asking rent is expected to climb another 4.5% from our April numbers. Robert Sammons is vice president, research services at Cassidy Turley, New York, N.Y.