NY market to fall further, rebound far off
NEW YORK (Reuters) - New York's depressed commercial real estate market is likely to fall further before rebounding, but its eventual recovery will be helped by new buyers who stayed away from the frothy market earlier this decade, industry observers said on Monday at the Reuters Global Real Estate Summit.
"New York typically dives to the bottom faster but it will be coming back," said top commercial real estate broker Darcy Stacom of CB Richard Ellis Group Inc (CBG.N), comparing it to other U.S. cities.
The value of commercial real estate in Manhattan has fallen by about half from its highs in 2007, and asking rents are down about 28 percent, Stacom added.
"It's going to be one of the more painful markets to watch," said Jacques Gordon, global strategist and head of research with LaSalle Investment Management in Chicago, who estimates it will take at least two more years before the New York market picks up again.
LaSalle Investment Management is the private equity arm of real estate services firm Jones Lang LaSalle Inc (JLL.N)
"New York on the way up was one of the most terrific commercial real estate investments you could make," he said.
But New York's market is about two to three times more volatile than the national average, he said, and some prices could fall as much as 60 percent from their highs before recovering.
Illustrating the market's woes, both experts said, is the $355 million sale of the offices at 1540 Broadway in New York's Times Square in February, about 32 percent below the price in 2006.
RUMORS OF NEW YORK'S DEMISE
Each downturn gives a new crop of buyers the chance to get into the market, Stacom said. This time "disciplined" buyers that stayed on the sidelines during the recent bubble, including established New York real estate families and some foreign buyers, are ready to swoop in and will propel the recovery.
"Right now we are hosting innumerable groups of people coming in from Asia, Canada and South America as they look to New York City," Stacom said.
Neither expert was concerned that the Wall Street crisis would inflict permanent damage on the real estate market.
"You could have said the same thing in the early 1990s, that Wall Street was never coming back," Stacom said, in reference to a bear market and real estate contraction that hit the city simultaneously nearly 20 years ago.
"You have the work ethic of New York which is 24-7," Stacom said, and the city remains a magnet for hard driving people who want to make their fortunes.
What's more, New York remains a relatively desirable, relatively cheap destination for global investors, both said.
"New York is a world class city and it is still competitive with other major financial centers," Gordon said.
Midtown New York ranked 21 among the 50 most expensive office markets, down from 15 last year and behind Luxembourg City, Geneva and Ho Chi Minh City, according to CB Richard Ellis global survey earlier this month. Tokyo's inner central district was the most expensive, with London in second place.
"If you can hold on over a 5- to 8-year time-frame, it's terrific real estate," Gordon said.
"The difficulty will literally be to hold on to it."