The gang at Appleseed, one of New York City's most interesting boutique economic development consultancies, has just launched a new blog. This is looking to be a must-read, as founder Hugh O'Neill has been one of the most accurate analysts and forecasters of economic trends in the New York region for many years now, and a strategist bar none. If his first post, a take on New York City's current commercial real estate market is a harbinger of things to come, I suspect we'll be back for more.
In June 2001, the Group of 35 – a committee of business, civic and community leaders convened by Senator Charles Schumer – issued a report on the development of commercial office space in New York City. Citing estimates that the City's office-based industries could add 300,000 jobs by 2020, the G35 report concluded that the City would need to add 60 million square feet to its existing supply of office space in order to accommodate the projected growth. But to produce new office space on that scale – an average net increase of 3 million square feet annually – the City would need to move aggressively to address a variety of barriers to new development, including zoning constraints, high construction costs and high property taxes.
While the G35's analysis was right on target, its timing was unfortunate. By the time the report was issued, the City's economy was already slipping into recession. The demand for office space was beginning to cool. And in the aftermath of Al Qaeda's attack on the World Trade Center, the issues raised by the Group of 35 seemed far less urgent.
In the bleak days of 2002 and 2003, many of New York's professional pessimists questioned whether the City would in the foreseeable future even need to replace the office buildings that had been destroyed on September 11, let alone add tens of millions of square feet of new space. The Port Authority and developer Larry Silverstein were widely and relentlessly criticized for their insistence on rebuilding all of the office space that had been lost at the World Trade Center.
Now, six years after the G35 issued its report, we're back to the future. In June 2007, according to CB Richard Ellis, the office vacancy rate in Manhattan dropped to 4.4 percent. Asking rents averaged $63.76 per square foot – a stunning 34 percent increase in just twelve months. In Lower Manhattan, average asking rents were over $46.79 per square foot – and in Midtown, $79.15. On Park Avenue, asking rents in June averaged more than $101. Cushman & Wakefield reports that in the first six months of 2007, 18 new leases were signed in Manhattan with rents in excess of $135 per square foot..... more