Last week, JLL launched a mid-year update to the 2016 Skyline Report, which provides online access to current market intelligence for the most iconic offices across our skyline. JLL’s Skyline provides insights on office supply, demand, rents and leverage for the top-tier office market within CBDs and urban cores. Five key trends shape this update, and below see how they impact our City.
- Gone today, here tomorrow
Many markets are expected to enter a period of time where available office space is expected to rise. In 2016 the Skyline will see the delivery of 34.4 million square feet of space become available. This will see the market shift from landlord – favorable conditions to an environment that is much more favorable for tenants.
This is certainly the case in New York. There are many buildings that are expected to have a large amount of vacant space in the coming years following renovation projects. Two of the most notable cases are 390 Madison Avenue and 425 Park Avenue. 390 Madison Avenue is expected to see 843,710 square feet become available in 2017 following the completion of its renovation. 425 Park Avenue will see 470,000 square feet become available by 2018 following construction.
It is not only new buildings that are going to have large vacancies to fill. 4 Times Square has over 1,000,000 square feet in future availability and there are many other buildings that, will be vacant in the not so distant future.
The massive amount of space that is expected to become available in New York in the coming years will give companies a multitude of options and will create a market that certainly favors tenants over landlords.
- More, more, more
The country’s fastest growing markets are nearing the top of the market, and it is tenants that are feeling the pressure. In short, this means that pricing for skyline buildings will get more expensive as new top of the line buildings are constructed. This may cause some tenants to look at lower cost options or different markets all together.
New York has not suffered from losing potential tenants to less premium skylines, and this is because of the status of leverage in New York. Right now in 2016, New York is neutral, meaning that vacancy is stable at market average and is expected to stay that way until 2017. In 2018, New York is expected to shift to being more tenant favorable, where landlords will be offering lower asking rents to boost occupancy due to the multiple space options at hand. This means that even as more Trophy buildings pop up in New York, the market won’t see tenants flee to other cities, because of how favorable the market is and is expected to be for tenants.
- Ready, steady, go
While the economy is currently stable and is expected to remain so for the foreseeable future, the broader global economy is weighing on the minds of investors. Combined with the growing worries of the trajectory of the technology industry in real estate expansion, and investors have reason to give pause.
New York is one of the few markets that has seen technology companies flocking to it. The tech sector represents 14.2% of all leasing throughout Manhattan and it represents 33% of leasing throughout Brooklyn. The technology movement taking place in New York is proof to investors that New York is a stable market, which is more than can be said for other cities.
- On the road
High barriers to entry in primary markers, which are the result of high cost and competition, has meant acquiring Skyline assets is a difficult task. This has led investors to hot secondary markets where rent growth is still attainable and tenant demand exists.
Despite investors turning their attention to secondary markets, New York is still a hot bed for investors, specifically foreign investors. According the JLL skyline investments page, 13.1% of Skyline assets were purchases by foreign groups in the past 12 months totaling $8.5 billion. Of the $8.5 billion, $4.6 billion was invested in New York, a figure that is more than half of the total investment by foreign groups and a whopping $3.2 billion more than the market that received the second largest investment from foreign investors, Boston. So while secondary markets have recently become a hot topic among investors, primary markets like New York will always be a priority for investors.
- What have you done for me lately?
Despite the increasing popularity of older creative buildings and fringe markets, Skyline assets still have lasting power. Owners must keep pace with the evolving times to stay competitive, especially in Skyline buildings with low occupancy. Investing in upgrading buildings can lead to considerable payoff In the long run.
In New York, more and more buildings are being renovated to try and attract new tenants or keep current ones. Since 2006 there have been 11 Skyline assets that have been renovated or built and two more are expected to be built or renovated by 2018. With the climate shifting from landlord favorable to tenant favorable, New York landlords must do everything in their power to try and attract tenants, and the first step in that process is to upgrade the buildings they own.
To view the mid-year update, and even have the opportunity to build your own Skyline with the mySkyline tool, visit the full site here.