There continues to be a significant amount of press about the rebounding office market in Manhattan. The investment market is up based on total volume invested by as much as 300% YTD over the same period last year. Leasing activity/deals done is also up dramatically based on the same time frame comparison.

But once again it is important to remember that we are comparing where we are YTD to what was one of the absolute worst markets ever, so of course the statistical comparison tells a positive story.

I do not deny that things are a helluva lot better now than at this point a year ago, and a year before that. And the difficult market that we have been through recently has forced almost all plans for new construction to be abandoned, with the notable exception of the World Trade Center redevelopment. That lack of new product coming to the market will wind up being a major saving grace in the years ahead as we would be in no shape to take on any real significant new absorption at this time.

Most of the deals you see are lateral transactions where companies trade one building for another. There are a few very large transactions out there, and I assume there will be some absorption in these situations, but large new vacancies will also result.

Due to uncertainty in the economy and the costs of doing business in NYC, there is still a tendency for companies to ‘right size’ there space occupancy, meaning providing less space per employee when they move. This phenomenon will continue to counteract some of the absorption that does occur.

But the real issue that hangs over our market, as well as the overall economy, is the issue of employment, and until the country sees real jobs creation, we will not see a real significant improvement in the overall economy or the office markets. Does anyone have confidence that our political situation in Washington is conducive to making the hard decisions that will be needed to jumpstart the economy?

The additional issue of the upcoming maturities in the debt markets, which will need to be dealt with eventually, will continue to hover over the situation as well. I know people say there is an enormous amount of equity sitting on the sidelines looking for opportunities, and the debt markets are beginning to open up.

But the owners looking to recapitalize will be unable to replace the debt dollar for dollar as fundamentals of lenders have changed drastically since the go-go markets of ’05-‘07, and the equity available generally wants control of the asset and not the pref equity being sought.

This deleveraging will need to work its way through the market and jobs need to be created before we can say we are really back in a vibrant market. I think we are still at least a year or two away.

-Andrew Simon

Andrew Simon is Executive Managing Director of NAI Global New York City.