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Weekly Market Report - July 10, 2019

Macy’s New Tower

What used to be a manufacturing hub, Herald Square is now a corridor of tourists and commuters cramming next to each other. Their center location is at the intersection of rail service and numerous subway lines, which has made it one of NYC’s busiest neighborhoods. Now Macy’s, which has been in the neighborhood for over 100 years, wants to build an 800-foot tower on top of its store. The city is experiencing one of the greatest growth periods in the history, but with this increase, it is also taxing transportation infrastructure. The streets are more clogged and have pushed down average speeds in Manhattan’s business districts to under 5 miles per hour while the subway is struggling to reverse a steep decline in reliability. The construction in the city has added over 40 million SF in the past two decades. More than 14,000 employees work in Herald Square, and Macy’s new tower could add another 6,000. At least one other developer is planning to build a tall tower in the neighborhood. While some community leaders are welcoming the construction, others aren’t stating that the tower can require major public investments to the streets and sidewalks.

Facebook Looking at Hudson Yards

Facebook is in talks to lease over 1 million SF of office space in a new construction on the far West Side in Hudson Yards. This would make one of Facebook’s largest office operations outside of their headquarters in California, as well as, another milestone for Hudson Yards. This follows Amazon’s canceled plans of building their $2.5 billion campus in Long Island City because of political opposition against state and city subsidies. This lease would give Facebook a chance to consolidate operations from several of its current New York locations.

NYC Land Prices are on the Up

Despite slow condo sales, rising construction costs, and the uncertainty surrounding retail, NYC land prices have been on the rise. They are keeping afloat by the growth in rental market as well as recent rezoning, the reinvention of the Affordable NY program, and opportunity zones. In the outer boroughs, the price has risen as well, however Manhattan seems to be slowing down. In the first quarter, Manhattan development trades went down 17 percent and 63 percent from first quarter levels in 2018. Year-over-year, the outer boroughs have seen a drop-off in the number of development sales but less of a decline in terms of dollar volume. Since prices have been modestly increasing, that suggests larger sites are transacting, indicating confidence in the market. Looking at the broader market, investors shying away from retail and stabilized multifamily products could mean more capital flowing into other product types, such as ground-up development, that have historically been perceived as high-risk.

WeWork: Taking over the World, is this Going to be the Biggest Bust in NYC? Currently they have very few assets, just lease hold positions and a monster of debt.

In less than a decade, WeWork has grown from renting a single building in Soho to becoming one of the largest tenants in the cities across the globe; it is the largest tenant in New York and one of the biggest in London. If the company can continue to expand, reduce its losses and convince investors that it will be around for the long haul, WeWork can help underpin the market for office space in many of the world’s cities. But if investors doubt the company’s model, then the impact will be felt across property markets. Just last year, they reached $1.9 billion and in March, the company said it is on their way to generate more than $3 billion over the following year.

After changing its parent firm to We Company, this past Spring, WeWork confirmed the launch of their private real estate investment firm: ARK, which will buy properties and look to fill them with WeWork services for the company’s enterprise clients. Now, ARK will merge with WeWork Property Advisors, a vehicle created by the We Company and a private equity firm the Rhone Group. This new platform will have almost $2.9 billion in total capital, including a $1 billion investment from Ivanhoe Cambridge.

In May, WeWork had signed leases for four Manhattan locations totaling 110k SF – 25 West 45th St., 28 West 44th St., 183 Madison Ave., and 550 Seventh Ave – for its headquarters.

China Gaining Credit with Foreign Investors

Foreign investors have decided to start buying commercial real estate in China again. Amidst the trade dispute with the U.S., they are focusing on China’s domestic market and their long-term growth prospects. From the U.S. and Switzerland to Bahrain and Singapore, institutional investors were net buyers of $2.7 billion worth of Chinese commercial real estate in the first quarter. This is the biggest amount of foreign purchases during the first quarter since 2007. The investors renewed interest shows them taking a bet on the growing power of the Chinese customer, local businesses, and regulatory changes that have helped level the playing field, such as Chinese officials reined in loans to slow credit growth and the dangers that debt can have on the financial system.


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