Officials from major New York property owners said 2011 office leasing activity was strong, despite broader economic concerns, in a panel at the Goldman Sachs Commercial Real Estate Symposium in Lower Manhattan on Thursday.
We're seeing general optimism. We're seeing tenants that are growing, said Mitchell Rudin, CEO and president of Brookfield Office Property's U.S. commercial operations and former head of CBRE's New York tri-state region. Brookfield saw record leasing activity this year, including a 767,000 square foot lease renewal for Bank of America and Merrill Lynch.
Rudin called Google's $1.8 billion purchase of 111 Eighth Avenue the year's most important event, as a signal of technology tenants committing to the city, a positive sign for the broader office market. Further development on the West Side of Manhattan is expected to further build the city's office base, and many tenants have flocked to Lower Manhattan, which has seen a diversification of its tenants.
I think the high-end is going to grow, said Andrew Levin, senior vice president of leasing at Boston Properties, referring to office spaces that rent for the top 20 percent prices. The high-end has really driven the market.
He added that while large financial firms were not growing or cutting jobs, downsizings were offset by growth in smaller companies such as hedge funds and private equity firms.
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Andrew Mathias, president and CIO of SL Green, Manhattan's largest office landlord, said that the lack of sublet space -- typically rented for lower prices -- coming on the market was also a positive sign.
Until you see big amounts of sublet coming on the market, we expect to see continued strength and continued rental growth, he said. It'll be measured because we're not in a good economy, but you're going to still see a strong market.
There has been a lack of distressed office properties in New York, and a large amount of bidders chase the few properties that are for sale, leading to return to near-boom level prices.
New York is hot. Investors want to be here, said David Greenbaum, president of the New York Office Division of Vornado Realty Trust.
The key is buying good assets, he said, particularly undervalued properties that have potential for higher rents through renovations and rebranding.
In April, Vornado and SL Green partnered to purchase 280 Park Avenue for around $500 million. According to the Post, the two landlords plan a redesign that will cost between $60 million to $100 million. Tenant Viking Global Investors reportedly renewed a lease for close to a $120 per square foot, a rate near the top of the market.
The panel expressed some trepidation regarding next year's mayoral election, which could include candidates that are seen as unfavorable to landlords.
We've had tremendous leadership over the past 12 years, said Levin. My hope is that we'll find someone who will continue that.