July 14, 2015 / 6:05 PM / in 3 years

New York office leasing solid; foreigners are big buyers

NEW YORK, July 14 (Reuters) - Manhattan commercial real estate leasing posted another solid quarter at the end of June, with rising asking prices for office space and availability in decline, Colliers International said on Tuesday.

Sales of commercial real estate in 2015 are on track for the biggest year since a record 2007, with foreigners accounting for 41 percent of buying activity, Colliers said.

Foreign investors have made nearly $5.5 billion in direct investment this year in New York, and could account for one-fifth of purchases by year’s end, up from a more typical 12 percent to 15 percent, the commercial real estate broker said.

“It seems like foreign capital is taking over,” said Andrew Nelson, U.S. chief economist at Colliers. “Why is that? It’s because foreign capital likes to be in the top cities,” where two-thirds of foreign money is invested.

Private equity firms, a major source of investment in commercial real estate, accounted for 47 percent of selling and only 29 percent of buying.

Prices per square foot hit all-time highs for office space in the downtown and midtown south submarkets. But despite record levels of activity, the Manhattan real estate market is not overheating, executives at Colliers said.

Cap rates, a common industry metric, are at historic lows and would suggest low returns and expensive prices, Nelson said. But he said the spread between cap rates and the 10-year U.S. Treasury note has not compressed and the ability to pay leases is not stretched.

“What it really means is property is expensive on the price per pound, or price per square foot basis, but relative to the fundamentals and how much income the properties are generating, it’s not very expensive,” Nelson said.

“It’s about average over the long haul,” he said.

Rents for office space in Midtown Manhattan, by far the largest U.S. market for offices, are $77.93 a square foot, still below their 2008 peak of more than $90 a square foot.

Manhattan experienced the seventh consecutive quarter of increasing leasing velocity and remains above the 10-year average. Leasing increased to financial services companies, a sign of a continuing U.S. economic recovery.

Overall leasing availability in Manhattan was just above 10 percent. That was up more than 2 percentage points from the lows of 2007, just before the U.S. housing bubble burst.

The midtown south submarket remained hot, with rents in renovated 100-year old buildings almost the same as Class A office buildings in midtown. Leasing activity rose 14.3 percent from the first quarter. (Reporting by Herbert Lash; Editing by David Gregorio)

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