Well, the building boom can apparantly be expected to continue unabated:
Downtown will remain hot real estate in 2008
Real estate experts say the city's commercial market will remain resilient in 2008 with Lower Manhattan expected to be a big draw.
December 27. 2007 3:23PMBy: Kira Bindrim
Top Commercial Projects for 2008 Slideshow Buck Ennis The city’s commercial real estate market was fairly resilient in 2007, considering rising rents, dwindling vacancy rates and an uncertain economy. Real estate experts expect that same durability to continue into the New Year, though at a slightly tempered pace.
“In the last few years, we’ve seen pricing spike dramatically, but the ratcheting up of rental rates is definitely going to flatten out as demand slackens somewhat,” says Robert Freedman, president and chief executive of GVA Williams. “We are going from an era of irrational exuberance to a rational but still fundamentally strong market.”
Commercial vacancy is expected to increase slightly to 7.2% in 2008, compared with an average vacancy rate of 7.1% for the first 11 months of 2007, according to Colliers ABR, leaving landlords with little motivation to lower their base rents. Manhattan’s average asking rent is expected to climb around 8% in 2008, after averaging $59.60 a square foot to-date for 2007, according to Colliers.
On the upside, a slight softening in demand could prompt landlords to increase their concessions – including free rent and build-out-designated financing – to keep tenants’ eyes from wandering.
“Tenant improvement dollars is an area where we might see some efforts by tenants to ‘get more’ from their landlords,” says Ken McCarthy, managing director of New York area research at Cushman & Wakefield
Downtown is not a trend. It's fundamental and enlightened urban planning."
--Robert Freedman, CEO of GVA Williams
Base rents downtown could make up for the flatness of their uptown neighbors in 2008. Prices there in Lower Manhattan are expected to soar past the $50-per-square-foot mark, hitting $53 a square foot by the end of the year, according to CB Richard Ellis. Vacancy downtown is expected to dip below 8%, hitting 7.5% by the end of the year.
Indeed, few neighborhoods have seen the kind of 180-degree turn that occurred downtown, where a once-stuffy nine to five locale has been transformed into a 24/7 hot spot.
“When you say something’s a ‘hot market,’ it’s transitory,” says Mr. Freedman. “It’s a trendy phenomenon. But downtown is not a trend. It’s fundamental and enlightened urban planning.”
Mr. Freedman and others predict the area has not yet hit its peak. As an increasing number of Class B and C buildings are converted into residential space, restaurants and retailers are heading south to take advantage of the lucrative new neighborhood.
Commercial tenants are following close behind, and with good reason. Through the end of the third quarter, the average midtown Class A rent was around $80 per square foot, according to The Staubach Co., compared with $52 per square foot downtown.
The credit crunch will not be without consequences. Nearly 80% of developers, service firms and investors surveyed say they expect underwriting standards for commercial mortgages to be more rigid in 2008, according a report by PricewaterhouseCoopers and the Urban Land Institute. That’s compared with 70% last year and just 36% in 2005.
But the overall outlook for 2008 is upbeat, and Mr. Freedman says economic caution might spell good news for developers and tenants down the line. “The underwriting standards for new construction and the criteria for refinancing existing assets will be more stringent today than prior to the credit crunch,” he says. “But as a result, we will have a much more rational model, and fewer mistakes are going to be made.”