When New York City’s financial sector started to contract in 2008, the demand for office space in the Midtown market shriveled. As a result the availability of office space in the Plaza and Rockefeller/Fifth Avenue districts in the Midtown market, in particular, escalated. By the end of the 2009 first quarter, the availability rate in Midtown was substantially higher than the level in Midtown South and Downtown. The financial sector is the lead horse that pulls the New York City economy, so the other major sub-markets in Manhattan were expected to follow the downward trend and show weakness in subsequent months.
In fact, the very preliminary numbers for the second quarter of 2009 do show that the degree of weakness among the major Manhattan markets is beginning to equalize. In the second quarter, the Midtown availability of space has increased, although not quite as much as is as much as both the Downtown and Midtown South markets will likely increase.
In recent weeks there have been some references to green shoots when talking about the national economy’s incipient recovery. In virtually all of these instances, it was noted that the rate of decline was slowing. The consistent uptrend in the stock market is, for the moment, confirming that upbeat assessment. While it is important not to get caught up in some type of mass self-deception, our data for the Manhattan office market also shows some green shoots among the rubble. In May, the total amount of space added to the available supply did increase, but the amount of space added was about 40% of the amount added each month during the previous six months. The deluge of new space in the Midtown market slowed even more, with the rate at about 30% of the level during the previous six months. The markets are still weakening, but at a much slower pace. Of course, one month of data does not indicate a trend, but there is additional fundamental data that may lend credence to the property level statistics.
Again, based on the preliminary data, the employment situation does not seem to be deteriorating more. The year-over-year job losses in total employment are about 100,000, or 2.4%. In the financial sector, employment levels seem to be holding steady, and the business fundamentals in that industry are improving. The unemployment rate for residents of New York City has been steady over the last few months, and the labor force number has continued to rise. These are additional positive signs, hopefully of things to come.
Peter Shakalis is a Director at
FirstService Williams Real Estate
pshakalis@fswre.com
The hedge funds and top-tier investment banks that are located in Midtown along the premier Avenues were the first companies in New York City to experience the tumult of the current recession. The decline in their business that began in the second quarter of 2008 was preceded by the collapse of the residential housing market that began a year earlier in the rest of the country.
