The changing of the calendar from one year to the next is always a time for reflection on the past and to look ahead to the coming year.
For the Manhattan commercial property market, last year was one of uncertainty and surprises. We expect this year to be one of stability and recovery.
Last year started with a high level of uncertainty as the Trump administration took office. The Republican maverick’s policies were largely unknown and it was not clear how this would affect the economy, foreign investment and the local property market.
So investors naturally became cautious. An ageing economic and property cycle was also a big factor as prospects for price appreciation diminished. As a result, sales of office buildings fell 58% in the first three quarters of 2017 compared with the same 2016 period.
But while the investment market was in ‘wait-and-see’ mode, the leasing market was full speed ahead. In 2017, 30.5m sq ft of office space was leased in Manhattan, making 2017 the second-strongest leasing market of the past 15 years, surpassed only by 2014.
The biggest beneficiaries of this demand have been new office developments on the West Side and Downtown. The Hudson Yards development, where there is currently nearly 9m sq ft of office space under construction with another 2.8m sq ft of building to start soon, saw approximately 2.8m sq ft in leases signed in 2017. That’s nearly 10% of all leasing, even though the new buildings themselves represent only 2.2% of Manhattan’s total inventory. Lower Manhattan’s World Trade Center also experienced strong leasing, showing tenants’ demand for new developments.
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The most-challenged sector was retail. As of the third quarter of 2017, availability of space increased in eight of the 11 submarket areas tracked by Cushman & Wakefield and asking rents fell in six of those 11 markets. The structural shift taking place in the sector as it adapts to ecommerce coupled with high rents for many Manhattan retail locations all combined to keep the market soft in 2017.
Cushman & Wakefield expects 2018 to be a better year for the investment market and to see a modest recovery in retail leasing markets
Looking forward, Cushman & Wakefield expects 2018 to be a better year for the investment market, a still-solid office leasing year and to see a modest recovery in retail leasing markets.
The pace of growth in the US economy is forecast to accelerate as high levels of business and consumer confidence, stimulus from tax policy changes and rebounding trade and investment boost activity. This is expected to fortify the New York City economy in 2018.
For Manhattan property markets, employment growth will be key. Since the current expansion began at the end of 2009, New York City has added approximately 750,000 jobs, of which 270,000 have been in office-using sectors. Employment is expected to continue to rise and this will support demand for space and keep leasing volumes healthy.
More certainty about the economic and policy environment, along with a stronger economic backdrop, will be positive for investment markets and should lead to higher sales volumes than in 2017. Retail is also expected to stabilise, as rising consumer spending and more-attractive rents halt the decline in demand for space.
A year from now, when we write our review of 2018, we expect to be looking back on a solid year for the Manhattan property market.
Ken McCarthy is principal economist at Cushman & Wakefield