Manhattan Economic Indicators

Third Quarter 2011
Real estate investment services
Manhattan Economic Indicators

The third quarter statistics offer some reassurances that the city remains on solid footing. The commercial property sales stayed strong, although volume declined slightly from last quarter, and the city recorded positive job growth for the quarter. Still, a look at the details confirms what the media has highlighted: Wall Street continues to face considerable challenges and will likely shed jobs. This will have a negative impact on the office leasing market which has already started to wither under the pressure of a 15% availability rate in Lower Manhattan. National economic statistics have been mixed yet noteworthy pundits forecast that the recovery will stay weak for some time (see conclusion). These reports along with continued threats from the European debt crisis take the wind out of the sails of New Yorks economy. Yet job growth from private education, retail and tourism should continue to provide hope that the city will defy the economic uncertainty from afar. As per Peter Hauspurg, Chairman and CEO, Investors have maintained their faith in New Yorks property market as the commercial sales market continues to withstand the headwinds from the global banking crisis and tepid national economy. Still, we are keeping an eye on Wall Street to see how the announced layoffs might impact financing and the broader economy.
Property Sales Volume

Driven by a surge in multifamily trades, the Manhattan property sales market stayed strong in the third quarter as $9.9 billion in sales were closed, which was a slight decline from last quarters $10.7 billion. However, the current numbers could still be revised upwards as more transaction data generally recorded with a delay trickles in. The volume of sales tends to slow in the summer months. Yet given the gyrations in the stock market after Standard and Poors downgraded the U.S. debt, the prolonged uncertainty from the negotiations on lifting the U.S. debt ceiling and the ongoing risks stemming from the European debt crisis, it is rather remarkable that the commercial sales market did as well as it did last quarter.
Manhattan Commercial Property Sales

Volume (in millions)
$-Volume Number of Transactions
$15,000 $10,000 $5,000 $0
600 400 200 0
Number of Transactions
$20,000
800
In the third quarter, there were only 21 sales of $100 million or more. Last quarter, there were 27 transactions of that magnitude, 14 of which were in the office market. The third quarter had only 9 office transactions of $100 million or more were closed. The number of transactions, however, increased to 249 from 241 last quarter as more multifamily sales were closed.
Source: Eastern Consolidated, Property Shark, CoStar and New York City Department of Finance
Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011
Manhattan Economic Indicators - Third Quarter 2011
Multifamily Sales of multifamily properties jumped 48% in the third quarter to $2.2 billion. This is triple the volume from the third quarter in 2010, $720 million. While the number of sales jumped from 115 in the second quarter to 139, the average transaction size grew from $13 million to $16 million in the third quarter.
Manhattan Multifamily Property Sales

$8,000
$6,000 $4,000 $2,000 $0
300 200 100 0
400
The average price per square foot increased as well from $488 in the previous quarter to $550 in the third quarter. This price increase was due to the significant shift in the breakdown of sales by neighborhood; that is, the third quarter had fewer transactions in Upper Manhattan and more in the Upper East Side and the Village.
Three of the largest sales in the quarter involved UDR, Inc. This Colorado-based REIT purchased Rivergate Apartments at 401 East 34th Street for $443 million and 21 Chelsea, at 120 West 21st Street, for $138 million. It also purchased 95 Wall Street for $325 million from The Moinian Group. The Rivergate sale worked out to more than $500 per square foot, the 21 Chelsea sale was close to $800 per square foot and 95 Wall Street closed at just over $600 per square foot. Another significant sale was Macklowe Properties purchase of 737 Park Avenue for $253 million or more than $1,000 per square foot. Because the dollar volume of multifamily sales increased more sharply than the number of transactions, we thought a deeper look into the statistics was warranted. Indeed, the volume of sales in Upper Manhattan declined over the last three quarters while the number in the Village and the Upper East Side increased significantly as shown in the charts below.
Multifamily $ Sales Volume by Neighborhood

Sales Volume (in millions)
$700 $600 $500 $400 $300 $200 $100 $0 Q1 2011 Q2 2011 Q3 2011
Most neighborhoods saw an increase in dollar volume over the last two quarters except for Upper Manhattan and the Upper West Side. The large sales mentioned above stand out in the Upper East Side, Chelsea, Midtown East and Lower Manhattan.
PAGE 2
Average Sales Prices Per SF
$1,000 $800 $600 $400 $200 $0
Multifamily Sales Prices by Neighborhood

Q1 2011 Q2 2011 Q3 2011
While factors such as retail space, vintage and the percent of free market units have a considerable impact on the price of real estate, prices by neighborhood differ notably as demonstrated by the charts at left.
Non-Multifamily Commercial Sales
$15,000 $10,000 $5,000 $0
210 140 70 0
$20,000
Manhattan Commercial Building Sales (Non-Multifamily)
280
The volume of non-multifamily sales declined from $9.1 billion in the second quarter to $7.7 billion in the third quarter. The number of transactions fell from 126 to 110 in the third quarter. The office market that drove the gains in the second quarter pulled the volume down this quarter, although hotel sales declined as well. Development site sales soared in the quarter.
The largest transaction in the quarter involved the recapitalization of 1633 Broadway. Paramount Group transacted with Beacon Capital and SL Green to buy out Bank of America and Morgan Stanley for $980 million. Also RXR Realty purchased the StarrettLehigh building for $920 million or close to $400 per square foot. RXR Realty, along with Broadway Partners, also bought 340 Madison Avenue for $625 million or more than $800 per square foot. The results by property type are shown below.
PAGE 3
Manhattan Land and Development Site Sales $1,200 $-Volume (in millions) Price per Buildable SF $600
Development site sales rose from $566 million to $1.1 billion in the third quarter. The largest sale was Rudin Managements purchase of the St. Vincents hospital site at 7-15 Seventh Avenue for $260 million. Also, the Witkoff Group purchased 1101-1113 Broadway, the Toy Center North building. Witkoff plans to convert the vacant building to condominiums. Finally, Extell Development Company bought 131-139 West 45th Street for $123 million. The average price paid in the quarter increased from $250 to $350 per buildable square foot.
$600 $300 $0
$300 $150 $0
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Manhattan Office Property Sales $7,500 $-Volume (in millions) Price per SF $750
The volume of office transactions fell from $6.5 billion to $5.2 billion. The quarter volume still exceeded the fourth quarters numbers when Google purchased 111 Eighth Avenue for $1.77 billion. The average price paid was unchanged at $495 per square foot. The number of transactions fell from 59 to 57; however, these include office condos that can skew the numbers.
$2,500
$250
$0
$0
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Manhattan Retail Property Sales $800
Q3 2011
Price Per SF Price Per SF
$5,000
Q3 2011
$500
Price Per BSF
$900
$450
$600 $400 $200 $0
$-Volume (in millions) Price per SF
$4,000 $3,000 $2,000 $1,000 $0
The volume of retail property sales climbed from $213 million to $288 million in the third quarter. The number of transactions fell from 19 to 18. The price per square foot jumped due to the sale of 1552 Broadway in Times Square, at Duffy Square, one of the most heavily trafficked corners in the city, if not the world. While the property measures less than 15,000 square feet, it allows for signage above that raises the value of the property considerably.
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Source: Eastern Consolidated, Property Shark, CoStar and New York City Department of Finance PAGE 4
Q3 2011
Manhattan Hotel Property Sales $1,500
$-Volume (in millions) Price per SF
$1,500
The volume of hotel sales declined from $1.26 billion to $958 million in the third quarter. There were five hotel sales in the quarter, down from seven last quarter, but only three sales of $100 million or more were closed: the Carlyle, the New York Palace Hotel and the Affina Hotel collection of six Midtown hotels. Last quarter, there were five trades of $100 million or more.
$500
$500
$0
$0
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
*Preliminary Estimates Source: Eastern Consolidated, Property Shark, CoStar and New York City Department of Finance
These robust third quarter results prove that the commercial investment sales market remains healthy and while it should withstand the challenges stemming from the global financial uncertainty, we expect the next few quarters to slow somewhat as the uncertainty tempers investors and lenders. Employment New York City added only 3,400 jobs in the third quarter and the private sector actually lost 1,000 jobs. The quarterly data was largely flat showing no particular industry adding or losing significant jobs. For the year, the city has added 49,800 jobs including 53,500 private sector jobs. In other words, the momentum in job growth slowed considerably in the third quarter following two quarters of robust growth. Interestingly, a look at the 2010 employment data shows a very similar pattern: strong growth in the first two quarters followed by flat growth in the third quarter. What is troubling about this pattern is that the fourth quarter of 2010 had a sharp loss in jobs. This trend may be repeated given the bleak forecast from the State Comptrollers office indicating that Wall Street could shed another 10,000 jobs. The two charts below clearly show how the current recovery in both New York City and, separately, the United States are in line with previous recoveries.
-5.9% Duration and Depth of New York City's Recoveries 20%
Cumulative % Growth in Employment
Q3 2011
Price Per SF
$1,000
$1,000
1992 2000
15% 10% 5% 0%
This chart showing the depth and duration of each of the last five recoveries shows that the trend in job growth is in line with previous recoveries with the exception of the 19831989 recovery when job growth was more rapid.
2001 2008 2009+ 1977 1981

1 11 21 31 41 51 61 71 Duration (Number of Months) 81 91 101
1983 1989
Source: Eastern Consolidated, New York State Department of Labor and U.S. Bureau of Labor Statistics PAGE 5
Duration and Depth of U.S. Recoveries

25%
Cumu ulative % Growth in Employment
1983 1990 1975 1981 1991 2001
20% 15% 10% 5% 0%
Similarly, while many bemoan the slow rate of growth at the national level, the chart shows how the current U.S. employment growth rate is in line with two of the last four recoveries.
2009+
2001 2008
11
21
31 41 51 61 71 81 Duration (Number of Months)
91
101 111
Source: Eastern Consolidated, New York State Department of Labor and U.S. Bureau of Labor Statistics
The table below highlights the industries that have added or lost the most jobs since the nadir of the recession which was in September 2009 for New York City and February 2010 for the United States.
New York City And U.S. Employment Changes Since Bottoming In September 2009 (NYC) And February 2010 (U.S.) (Ranked By New York City Growth Or Loss) Biggest Gainers Since Trough Industry Educational Services Food Services & Drinking Places Retail Trade Employment Services Health Services Securities Advertising & Public Relations Computer Systems Design Accounting Management Consulting Motion Picture & Sound Recording Real Estate New York City 27,700 19,700 16,500 10,600 8,900 6,700 5,600 4,900 4,500 4,000 3,300 2,600 16.8% 9.7% 5.6% 18.4% 2.2% 4.1% 10.8% 11.1% 10.0% 12.9% 7.5% 2.2% U.S. 108,900 233,300 208,400 352,800 492,700 11,400 N/A 97,500 29,300 69,200 -8,800 -9,000 Industry 3.5% Religious, Civic & Non-Profits 2.5% Other Manufacturing 1.4% Federal Government 13.5% Publishing 3.6% Local Government 1.4% Arts, Entertainment, Recreation State Government 6.8% Legal Services 3.3% Apparel Manufacturing 7.0% Transportation, Utilities -2.4% Telecommunications -0.5% Biggest Losers Since Trough New York City -6,000 -5,200 -4,600 -4,300 -3,900 -3,500 -3,200 -2,300 -1,800 -1,700 -1,000 -5.9% -8.4% -8.4% -8.9% -0.9% -5.2% -6.5% -2.9% -10.5% -1.4% -4.7% U.S. 86,000 285,300 -52,000 -9,700 -383,000 -8,700 -54,000 -400 -6,300 122,900 -73,500 2.9% 2.5% -1.8% -1.3% -2.6% -0.5% -1.0% 0.0% -3.9% 3.0% -8.0%
Source: Eastern Consolidated, New York State Department of Labor and U.S. Bureau of Labor Statistics
Note in the above table that every industry in the left-hand side of the table that added jobs since the trough did so at a higher rate than the U.S. with the exception of health services that has lost jobs in four of the last five months. Even securities added significantly more jobs in New York City than in the U.S. However, the right columns show that industries that have yet to recover their lost jobs from the last recession have faltered at a greater rate than the equivalent U.S. industry with the exception of local government and telecommunications. See the conclusion for further outlook on the citys employment picture.
PAGE 6
Office Leasing Market

The office leasing market that had started to accelerate in the first and second quarters of 2011 slowed in the third quarter as the Manhattan Class A and B availability rate increased for the first time in seven quarters. Two of the three submarkets saw availability increase marginally pushing the Manhattan Class A and B availability rate to 12.3% from 12.2% at the end of the second quarter. The average asking rent, however, increased to $51.07 from $50.53 per square foot in the second quarter. The increase was due to added space in Midtown.
Manhattan Availability Rate vs. Asking Rent

25% 20% Midtown Downtown Midtown South Manhattan Overall Asking Rent $90 $75 $60 $45 $30 $15 Q3 2011
15% 10% 5% 0%
Q4 2007
Q1 2009
Q2 2010
Source: Eastern Consolidated and CoStar
Very few significant leases were signed in the third quarter, and a number of buildings listed space. The highlights of the added space and absorption are summarized below.
Summary Of Changes In Availability By Submarket Added Space In Downtown Absorption In Downtown 207,000 Square Feet (Direct) At 75 Park Place 193,000 Square Feet (Direct) At 156 William Street 269,000 Square Feet (Direct) At 85 Broad Street (Oppenheimer Lease) 210,600 Square Feet (Direct) At 40 Rector Street 168,000 Square Feet (Direct) At 80 Broad Street Added Space In Midtown Absorption In Midtown 448,000 Square Feet (Direct) At 101 Park Avenue 235,000 Square Feet (Direct) At 330 Madison Avenue 200,000 Square Feet (Sublet) At 1251 Avenue of the Americas 194,000 Square Feet ( Direct) At 1633 Broadway 160,000 Square Feet (Direct) At 224 West 57th Street (Open Society Lease) Added Space In Midtown South Absorption In Midtown South 300,000 Square Feet (Direct) At 11 Madison Avenue 174,000 Square Feet (Direct) At 350 Hudson Street 84,000 Square Feet (Direct) At 620 Avenue of the Americas 66,000 Square Feet (Sublet) At 155 Avenue of the Americas
The good news is that the sublease space availability continued to decline in the third quarter, albeit by a small margin overall but by a wider margin in Midtown. This decline in Midtown sublease space very likely contributed to the average Midtown rental increase from $56.78 to $57.66 per square foot in the quarter. The average rent in Midtown South increased by nearly $2 per square foot to $44.39. The increase was due to the new space added at 11 Madison Avenue. The table below shows how the overall sublease space declined to 18% of the total available space from 22% in the third quarter of 2010 and the overall availability rate declined significantly as well. This is good news, but recent announcements on layoffs in financial services will likely push availability back up. Other industries such as technology-related ones are growing Twitter leased 11,000 square feet at 340 Madison Avenue in June. But these firms will need to grow at a much faster rate to offset the potential losses at securities firms.
PAGE 7
Asking Rent ($ Per SF)
Square Feet
Available Sublease Space Q3 2011 34,746,989 14,762,900 5,379,344 54,889,233 Q3 2010 36,309,177 14,267,239 7,005,130 57,581,546
Midtown Downtown Midtown South Manhattan
Total Available Sublease Space As A% of Total Q3 2011 Q3 2010 21% 24% 11% 16% 17% 21% 18% 22%
Total Availability Rate Q3 2011 12.4% 14.8% 8.0% 12.3% Q3 2010 13.1% 14.0% 10.8% 13.0%
Asking Rent Q3 2011 $57.66 $38.45 $44.39 $51.19 Q3 2010 $51.74 $38.91 $39.82 $47.11
Source: Eastern Consolidated and CoStar
Conclusion There is no doubt that the local economy faces a number of challenges, not the least of which includes layoffs in the finance industry. The State Comptroller Thomas DiNapoli forecasted that as many as 10,000 jobs could be cut in the next year. This will continue to ease pressure on rents just when a number of new office developments are starting to get underway both in Downtown and in Hudson Yards/Midtown West. While New Yorks economy braces for more bad news, the national economic statistics have been mixed. The retail sales report was surprisingly strong last month, growing by 1.1% in September over August, the highest monthly growth rate since February. The gain was attributed to a 3.6% increase in auto sales. After adjusting for inflation, real consumption grew at an annualized rate of 2% in the third quarter, up from 0.7% in the second quarter. National GDP grew by 2.5% in the third quarter, up from 1.3% in the second quarter. Manufacturing output increased by 0.4% in September, also led by a 0.7% increase in motor vehicle production. Excluding motor vehicles, manufacturing output increased by 0.3%, helped by a 1.0% increase in computers and electronics. On the finance front, the volatility in the stock market has settled from the tumultuous days in August, but the S&P 500 index remains subdued, hovering around 1,200, down 12% from a high of 1,360 in May. Using these and a number of other statistics, the well-respected Economic Cycle Research Institute (ECRI) recently asserted that an economic contraction is very likely as judged by its proprietary leading economic indicator. The consistency and accuracy of the ECRI leading index is compelling. A double dip recession would have a consequential impact on the national economy, not only because the national unemployment rate is already 9.1%, but because investors and entrepreneurs need a sense of hope in order to take on risks be it a new business venture or simply an expansion. If many believe that aggregate demand will contract, then businesses will refrain from hiring and the law of self-fulfilling prophecies will perpetuate the recession. Still, all is not doom and gloom. The industries thriving in New York will continue to do so: namely, tourism, private education and technology. The jobs numbers discussed above show how the gains in these industries are more than offsetting the losses in finance, law and publishing. Moreover, the outlook remains strong, particularly for private education as a number of higher institutions are competing feverishly to be selected to build a new applied-sciences academic and research facility with the help of up to $100 million from the city. Columbia and NYU are already expanding in the city. They have entered this competition as have Stanford, Carnegie Mellon and Cornell Universities. These science programs will not only add immediate construction jobs followed by teaching and related administrative jobs but should eventually spur business development in technology-related fields from their applied programs. The growth in higher education in New York City over the last ten years has been unprecedented and reflects the increase in both population as well as tourism growth. In short, New York City has and will continue to be a desirable place to live, work, visit and study in sentiments well understood by real estate investors who prefer to buy in New York City over nearly anywhere else in the U.S. In short, while office rents should stay flat which will slow the growth of office property sales, multifamily property sales should continue to grow but at a moderate and steady pace.
Barbara Byrne Denham, Chief Economist, Eastern Consolidated
PAGE 8

Manhattan Economic Indicators - Third Quarter 2011

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Manhattan Economic Indicators - Third Quarter 2011

Uploaded by

Copyright:

Available Formats

Third Quarter 2011

Real estate investment services

Property Sales Volume

Manhattan Commercial Property Sales

$15,000 $10,000 $5,000 $0

600 400 200 0