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Commercial Real Estate Mavens Forecast Cautious Optimism, Strong Fundamentals for 2016 Market at REBNY Members' Luncheon
March 24, 2016
(L-R) John Banks, REBNY President, with speakers: Chase Welles, SCG Retail; Sacha Zarba, CBRE, Inc.; Helen Hwang, Meridian Investment Sales, LLC; Ron Lo Russo, Cushman & Wakefield (moderator); Hal Stein, Newmark Grubb Knight Frank; and Kevin Wang, KRW Realty Advisors, LLC and Co-Chair of REBNY’s General Members Committee
-- Ron Lo Russo leads discussion with Helen Hwang, Hal Stein, Chase Welles and Sacha Zarba on New York City investment, leasing --
New York City’s commercial real estate community turned out in force at the New York Hilton Midtown on Tuesday, March 22nd for the Real Estate Board of New York (REBNY) Members’ Luncheon, which featured a dynamic discussion titled: “New York City Market Forecast - Where Are We Now? and Where Are We Going?”
The panel was moderated by Ron Lo Russo of Cushman & Wakefield and featured Helen Hwang of Meridian Investment Sales, LLC, Hal Stein of Newmark Grubb Knight Frank, Chase Welles of SCG Retail, and Sacha Zarba of CBRE, Inc.
In his welcoming address, REBNY President John H. Banks, III, noted the continued critical need for more housing across all income levels, particularly rental housing as two-thirds of New Yorkers rent their homes.
Ron Lo Russo set the stage for the discussion reflecting on how 2015’s record high job growth was driven by the expansion of the TAMI, healthcare and education sectors, in addition to the boom in residential real estate, retail sales and office space, with Brooklyn and Long Island City contributing significantly to the overall growth.
“I am forever bullish on New York City real estate,” he said. “Yes, there are ups and there are downs, but for the most part, there is no better place to be to put your cash in capital to invest in buildings and be here as an employee, as an owner, and as an operator.”
Helen Hwang explained that while 2015 was a tremendous year with the largest volume of sales in the history of New York City, investors are on the fence and proceeding with more caution in 2016. There has already been a drop in sales volume year-over-year due to volatility in the market and stabilized pricing.
“It is not the best time to push the billion dollar button again,” she said. “Things are picking up, but investors are a lot more cautious, a lot choosier, and thinking a lot smarter about what they’re buying.”
Hwang also noted how she anticipates 2016 will be about creating value.“Anyone who’s invested in the real estate market in the last five years has really hit a home run, they’ve done fantastically. But I think now you’re going to have to add value, you can’t just keep flipping deals and see pricing increase. Pricing has stabilized,” she said.
Chase Welles noted that there is caution in the retail market, particularly in certain submarkets, such as Fifth Avenue and SoHo, which are being affected by exchange rates and seeing a large spread between taking and asking rents. However, he stated that neighborhoods in Brooklyn and throughout Manhattan are still very active with daily needs retailers.
While Welles predicted that the market will maintain elevated asking prices for a while, he acknowledged a new reality in rents. “I see quite a few well-capitalized retailers watching and waiting, and making offers that would’ve been absolutely ignored a year-and-a-half ago – offers with much more land or capital, lower rent escalation, and longer terms,” he said.
Hal Stein expressed his bullishness on Lower Manhattan, which he forecasted will be in a much better position in 2016. Growth downtown, he reasoned, has been attributed to the immense increase in the number of residents and hotel rooms, in addition to investment in transportation infrastructure and new office space.
Demand from TAMI tenants, who have typically been attracted to the character and columns of older stock buildings, have also played a major role in Lower Manhattan’s growth, causing an interesting dynamic between Class B and Class A office space. “Class B office space is, in essence, outpacing the Class A market downtown and, in certain circumstances, is actually outpricing the Class A market mostly on the east side of Lower Manhattan,” he explained.
In his predictions for the remainder of 2016, Sacha Zarba noted how New York City’s commercial real estate market will remain fundamentally strong. “I don’t think we’re going to do what we did in 2015, but I think things will still be and remain fundamentally strong in 2016,” he said. “Things will continue to bump along, not necessarily spike or go down.”
He added that tenants will take more time and be more discerning in the decision making process, staying a little more cautious before they spend capital.
With regards to tenant movement, Zarba noted how he’s seeing some companies in Midtown explore other neighborhoods to cater to employees, while other companies that one would typically see in Midtown South, are looking to be in Midtown so they are closer the firms they are selling to. Additionally, he noted that landlords, particularly in Midtown, are catering more to millennials by incorporating lounges and cafes into their office spaces.
During the luncheon, REBNY also announced the 2015 Most Promising Commercial Salesperson of the Year award winner. REBNY’s Commercial Brokerage Board of Directors presented the coveted award to Morris Betesh, a Managing Director in Cushman & Wakefield’s New York Capital Markets group, who is the nineteenth winner to be inducted into REBNY’s prestigious “Circle of Winners” group since the creation of the award in 1996.
The sponsors of the Members’ Luncheon were Extell Development Company, HJ Kalikow & Company, LLC, the Kaufman Organization and L&L Holding Company, LLC.