NEW YORK (Reuters) - The hot Manhattan commercial real estate market is likely to remain strong for another two years, buoyed by foreign and domestic corporate demand and limited supply, predicted one top real estate broker at the Reuters Real Estate Summit 2007 on Monday.
Howard Grufferman, the Grubb & Ellis GBE.N vice chairman of Transactional Services, said the market probably won’t loosen up until 2009 for large blocks of high-end real estate, as large new office complexes open their doors.
“This extraordinary run-up in rental rates is going to continue through 2008 and into early 2009,” the 23-year veteran commercial broker told the Reuters Summit. “There is just not a lot of space around and not a lot of big blocks of space.”
Manhattan is currently enjoying a boom in real estate, rebounding from the September 11, 2001 terror attack, which prompted fears that the financial services “anchor industry” could abandon the city for safer regions.
While major “bulge bracket” banks and brokerages did set up extensive back-up operations elsewhere, lower and midtown Manhattan remains a prime location for financial services, fueled also by a resurgent growth in hedge funds.
“The hedge funds are sort of floating this market right now because they are willing to pay significant dollars in rentals,” said Grufferman, whose clients have included Fortress Investment Group FIG.N, a major investment fund, and law firm
Weil Gotshal & Manges, which has a large roster of investment fund clients.
While there are major office building projects underway, including the new Bank of America Corp. (BAC.N) building on 42nd Street and the planned Goldman Sachs (GS.N) headquarters downtown, major new blocks of space aren’t predicted until Vornado Realty Trust (VNO.N) starts work on a new project near Pennsylvania Station off 34th Street, he said.
“We assume that at some point this year a deal will be announced for the Hotel Pennsylvania, which is a Vornado property on the West Side,” said Grufferman. It’s going to have great appeal to the financial services world. It will make this area quite valid.”
The area, called the garment district, “has a little bit of a lack of identity,” but eventually it will be “a very acceptable neighborhood” for high-end offices.
Grufferman said other factors driving the Manhattan market are demand for office space by both Fortune 500 companies and also an influx of European and Mideast capital. Grufferman also expects Chinese investment to make a major impact on the market in coming years as the Chinese government looks to redeploy its massive foreign currency reserves.
“Manhattan is still the place to be,” said Grufferman.