by Brianna Crandall — October 2, 2015—The most recent “big” news for the U.S. real estate market is about a non-action: that the Federal Open Market Committee once again decided, at its September meeting, not to raise interest rates, at least for now. It would have been the first increase in nearly a decade, and many in the real estate industry wondered what effect it would have had on the market, according to the Royal Institution of Chartered Surveyors (RICS), the U.K.-based international professional body for land, property and construction.
U.S. market still strong
With that question settled at least for now, the U.S. commercial property market continues to show strength and the New York market is booming, according to the latest RICS sentiment survey and interviews with industry leaders. Occupier demand in the United States grew across all sectors in the second quarter (Q2) of 2015, with the industrial sector showing an especially sharp increase.
Investor demand also grew across all sectors, from both domestic and foreign sources, with the supply of properties for sale staying broadly flat but the multifamily sector expected to outperform over the coming year, according to the RICS Q2 U.S. Commercial Property Monitor.
New York still boom town
The New York commercial market continues booming along. The Big Apple had the highest percentage of respondents — 83% — of any city in the world in RICS’s Q2 Global Commercial Property Report who believe market valuations are currently “expensive.” Furthermore, across the top markets, respondents believe the property cycle may be close to reaching its peak. Indeed, all New York contributors sense the market is either in the mid-upturn (67%) stage or peaking (33%). But it sounds like the city still is highly desirable for investors and other players.
“The residential and office market are very strong in New York City, in terms of absorption, rent growth and vacancy with significant demand from both domestic and international investors,” said Thomas Justin, executive VP and principal, The Weitzman Group Inc. “The strength of the market, and resultant rise in rents and prices, is pushing growth into the outer boroughs, particularly Brooklyn, where the property market is ‘on fire.’
“The real story to be told, however, is the ‘explosive’ growth of the tech sector in the city, which has more than offset the slowdown witnessed in financial services… However, one area of concern is the very high end of the condominium market, where we could see overbuilding.”
Alice P. DiMarzio, MS FRICS, senior managing director, NGKF Capital Markets, added, “Since the economic recovery, the New York City real estate market has been driven by high-end luxury condo development, moving that market from a price of $1,200 per square foot in 2007 to more than $4,600 per square foot in some new properties today. Land prices have followed suit, impacting both new hotel and office development, and new office product of this century is sorely needed in New York.”
East Midtown project
With that in mind, DiMarzio sees enormous potential in the proposed rezoning of a 73-block area surrounding Grand Central Terminal: “Luckily, after a couple of years of consideration, the City has seen fit to propose a rezoning of East Midtown from roughly 39th to 59th Streets, allowing for significantly increased property sizes and heights.
“What we will see when the rezoning is finalized is active trading in B Class older office product that can be vacated over time, demolished and replaced by new state-of-the art, larger properties. The smart local money will place their long-term bets on East Midtown new construction, and hopefully, some foreign funds will do the same. They buy the best and most expensive buildings; there’s a global appetite for ‘trophy buildings’ in all parts of the world.”
The proposed rezoning is expected to spur new development that would replace approximately 10 million square feet of aging commercial space and add approximately 4.5 million square feet of commercial space, according to New York’s Department of City Planning.
