Is the NYC Commercial Office Market Improving as Much as Advertised?
There have been many articles and reports that have come out recently highlighting the improving fundamentals for the New York City office market. There seems to be a general sense that if enough people try to paint a positive picture, then the market will follow the perception.
As anyone who has taken statistics classes knows, the same statistics can be used to support both sides of an argument. So I think it is important to understand where we have been, and what we are comparing things to.
For instance, a recent market report from one of our competitors trumpets the best overall performance since early 2008. That sounds pretty good when you think that we are doing better than we have for the last 2 ½ years. But when you stop to put that in perspective for a moment you realize that the current (or former) recession is generally considered to have started in mid-2007, and is the deepest in many respects since the Great Depression of the 1930s.
So these recent reports are trumpeting improvement when compared to what has been, in my 30+ years in this market, the worst downturn since the mid-1970s when NYC was near bankruptcy. When you look at where we were one year ago, we were just starting to see activity return to the leasing market after what had been almost a complete standstill. Remember in the first half or 2009 when there was widespread concern about what companies would not survive at all?
So there is optimism now, with the most recent evidence of improvement coming this week in a NY Times front page article about hiring returning to Wall Street; good news for the office leasing and residential markets. But as we say this, financial reform is about to be signed into law and no one can say with any certainty what effect that will have on hiring.
Having said that, in response to layoffs during this downturn, worker productivity has risen drastically as fewer employees are tasked with more responsibility. If corporate revenues continue to rise, companies will be forced to hire in order to sustain growth.
So as I have been suggesting for a long time now, when you can tell me with reasonable certainty when robust hiring will return, I will then tell you with more certainty that our recovery is now full borne.
NYC’s saving grace is that most new construction was delayed or cancelled outright as a result of this downturn, and that has helped with the overall impression that we have survived the worst of it. And that makes it feel better than the serious downturn of the late 1980s-early 1990s when a large amount of new construction that came online at the worst possible time made it feel like things would never get better.
So when hiring takes off, and companies feel they need to expand again, I expect the market to rebound with a vengeance. I just cannot tell you if that is 6-12 months from now (unlikely), 5 years from now (more likely, but not very likely), or somewhere in between.
Andrew Simon is Executive Managing Director of NAI Global New York City.
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