http://www.reit.com Supply and demand in the office market of New York City is starting to come back into balance, according to Michael Knott, analyst with commercial real estate research firm Green Street Advisors.
In the October 2010 edition of Word on the Beach: Green Street Advisors’ Monthly Market Insights, Knott delves into the Big Apple’s commercial real estate market, focusing on the office sector. Knott says the vacancy rate in Manhattan is approaching 10 percent, a positive development for the sector.
“When you start getting to that level, you’re starting to reach the outer edges of equilibrium between supply and demand,” Knott says.
However, although Green Street expects New York City to post the strongest recovery among major U.S. office markets, it will “pale in comparison” to the recovery experienced between 2005 and 2007.
Despite the slowdown in transaction activity during the recent market downturn, evidence suggests that New York office assets experienced “pretty dramatic declines” in values, according to Knott. Yet, since the market bottomed out, Green Street estimates that property values have grown by about 50 percent.
“The good news is that since that time, over the past year and a half credit markets have repaired themselves remarkably and asset values have risen as a result,” Knott says.
Manhattan offices will remain a popular investment, according to Knott, as investors continue to benefit from their strong yields and inflation-hedging characteristics.
Looking farther ahead, Knott speculates that ongoing concerns in the financial industry could pose challenges to office REITs operating in Manhattan.
“Finance is the key economic engine for Manhattan,” he says. “In a nutshell, we expect that finance profits and the total contribution of finance profits to total U.S. corporate profits will continue to recede over the next several years.”
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