New York is one of the world's most desirable real estate markets. New York's position as a global city and as one of the world's most influential business centers has a direct effect on the local real estate market, both in New York City and in New York State. The local market is characterized by limited supply and high demand, along with above-average prices across all commercial sub-markets.
More than 40,000 office jobs were created in New York during 2014. The office real estate market is dominated by tenants in insurance, financial services, media, advertising, and technology sectors. According to Colliers International, during the first quarter of 2015 asking rents in all Manhattan sub-markets continued their upward trend and currently average $67.62 / square foot (a 6 per cent year-on-year increase). The highest rents are in the Plaza District ($92.57 / sq ft), and typical rent-free periods range between 5 and 9 months. In MidTown, rents have increased by 1.8 per cent over the last quarter and now stand at $76.15 / sq ft. Downtown New York is still largely considered a volatile office market, although rents have reached record prices of $55 / sq ft, a figure that is nearly 10 per cent higher than in 2014.
Although activity is concentrated in New York City, strong demand and rising activity levels are also evident in other cities of Western New York, most notably in Buffalo, where vacancy rates in the office, retail, and industrial sub-markets are below the national average at 4, 11.57, and 5.7 per cent respectively. Albany is another important hotspot, particularly among companies in the healthcare sector. Vacancy rates for Class A office space in Albany average 5 per cent.
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New York is by far the most expensive of the US retail core markets. Colliers International has reported that New York tops the global list of most expensive retail rents, with average asking prices reaching $3,550 / square foot / year in Fifth Avenue and $1,643 / sq ft / year in Madison Avenue. The lowest rents are in Upper West side ($388/sq ft) and Third Avenue ($328). Some of the country's most important retail transactions have taken place in New York, including the lease of the Green Acres Mall and the sale of 503 Broadway.
Outside New York City, the retail real estate market is slowly recovering from the recession, although some encouraging signs suggest increasing optimism among tenants and investors. For instance, vacancy rates for retail space in secondary markets have reached 10 per cent for the first time since 2009.
Incentives and Programs
There are numerous general and industry-specific incentive programs to help New York businesses access commercial space. Some of the programs offering tax breaks and/or rent abatements include:
- Commercial Expansion Program
- Economic Development Fund
- Empowerment Zone Benefits
- IDA Tax Incentives - ICAP
- Lower Manhattan Sales & Use Tax Exemption
The completion of the new World Trade Center complex will add over 10 million square feet to the city's stock and has already attracted important anchor tenants like Media Math and Conde Nast. Other important office developments are taking place along the Hudson River and in the West Side, totalling 13 million square feet of mixed-used floor space. The Meatpacking district and the Far East Side are also becoming hotbeds of office development and are attracting companies in the medical, life sciences, and pharmaceutical sectors.
Alternative ways of securing investment are emerging in the New York real estate market. A good example is the grass roots organisation New York City Real Estate Investment Co-operative, which relies on crowdfunding to attract investment and has already secured $1.3 million that will help new tenants find affordably priced property in this notoriously expensive market.
Overall, market analysts affirm that demand for commercial space will continue to rise, putting additional pressure on average asking prices. Likewise, demand for new types of workspaces is rising across New York City. A recent New York Times article revealed the increasing demand for “superwides”, or single-story office units of 100,000 square feet and above. This type of floor space is mostly appealing to tenants in the publishing and financial sectors, and large companies like Spotify, Tommy Hilfiger, and McGarryBowen have already moved into superwides in the Flatiron district and West Chelsea.
As for the retail sub-market, market analysts agree on their positive outlook and affirm that this sector will be marked by strengthened demand and high absorption rates.