The Demand for Flex Space in Manhattan
In Manhattan, flexible leasing space makes up 3.6% of its total office leasing inventory, while nationwide it only takes up less than 2%. What makes Manhattan so desirable for these spaces are the tech-centric, low-vacancy, and high-rent market conditions. Flex space has more than tripled since 2014, reaching 15 million SF as of Q1 2019, and it is mostly due to larger corporations embracing the change in the commercial real estate environment. While Class A space is preferred, Class B or C buildings have been benefiting more from the high levels of build-out and the opportunities for branding. Recently, flex space providers have been looking to create partnerships with landlords as the traditional lease is still mostly predominant. “A lot of landlords have explored all the different ways they can share more in the upside rather than leasing to a flex provider”. The rise of the flex space sector will continue to grow and will have an everlasting change to office leasing.
Queens: Leasing Increased while Investments Decreased
After Amazon pulled out of Long Island City in February, Queens held its ground. In Astoria and Long Island City, leasing for the first half of 2019 was 558K SF, which was a 170% increase from the 207K SF at the same time last year. Two big leases included Macy’s adding an additional 300K SF at their Jacx development, and New York Times leased 57,846 SF at Court Square Place. Asking rents in these two cities have decreased to $41.77 per SF, while vacancy and availability rates have increased to 15.5% and 24.7% respectively. However, investments in Queens have slowed down. Transaction volume decreased by 16%, and property volume decreased 21%. People are taking a more conservative approach and are much more willing to walk away from a deal if something better comes along. Also, the turnarounds on deals are more than 30 days, almost nine months to a year.
Retail Vacancies in NYC Doubled Since 2007
Within the five boroughs, retail vacancies have doubled as stores are facing off against online shopping and increased rents. Citywide vacancy rate grew from 4% in 2007 to 5.8% in 2017, which increased the amount of empty space to 11.8 million from 5.6 million in 2007. Elected officials are in the midst of getting bills passed to protect mom and pop shops, while last month a bill was passed that created a database requiring landlords to register the status of their empty retail space. Retail rents increased by 22% from 2007 to 2017, and Soho has the largest amount of empty space with 265,230 SF in 2017 and a vacancy rate of 6.8%. The amount of time it takes for businesses to get permits from the NYC Department of Buildings has also increased in 2018, as well as, the number of days it takes to get a liquor license, which both contributed to the rise of vacancy rates. While Manhattan has half of the 20 neighborhoods with the largest amount of vacant square footage, the outer boroughs have the highest vacancy rates. Staten Island has the worst with 11% in 2017, increasing from 4.3%. Queens and Brooklyn also had rates well above the citywide average. In August, the NYC Department of City Planning said, “there’s not a pervasive vacancy problem” and the vacancy rates were “not necessarily cause for alarm”.
How Commercial Real Estate is Adopting the Online Marketplace
From newspapers and face-to-face meetings, the Internet has continued to change the way brokers and real estate companies sell properties. Massive online databases were created, which are globally accessible, and easily searchable. However, all countries have been having different reactions, such as, using the online platforms or not using them at all. What makes brokers and commercial real estate companies use these platforms include “licensing requirements, exclusive listing rights, and the existence of powerful broker organizations”. Also, all platforms are created for different uses: posting listings; creating tools to help the sales process; and a new wave where marketplaces are starting to do the brokering all on their own. Overtime, these platforms have started to change the real estate industry. Brokers can do more deals by saving time with using these databases, and soon the commercial property market will become all digital as well.