City real estate rebounds: City Facts update

by Greg David

What is the most important number in real estate these days? 8%.

When the office vacancy rate is at 8%, the experts say, the market is at equilibrium. Of course, we are never at 8% for long. When the number is higher, then tenants have the upper hand and rents fall. When the number moves below 8%, landlords gain the advantage and rents rise.

As you will discover in the 2011 edition of City Facts, tenants continue to have the advantage. The vacancy rate is 9.4% and the average asking rent for office space in Manhattan is $55.52 a square foot. By comparison, the lowest average vacancy rate in the last boom was 5.3% in 2007 and the next year asking rents hit an average of $71.59 a square foot. The lowest vacancy rate in recent decades was recorded in 2000 when the figure fell to 3.7%.


Nevertheless, the picture City Facts paints is of a recovering market. Net effective rents have fallen sharply even if asking rents have not increased much. Space absorption has turned positive. Office building sales are on the upswing. Media companies are taking more space, helping to offset weakness in financial services. In the retail space markets, tourists are fueling increases in rents as stores compete for space in areas like Times Square. In fact, retail rents hardly declined in the recession.

On the residential side, apartment prices have remained surprisingly strong throughout the housing meltdown elsewhere. Co-ops and condos each comprise 50% of the sales market. Co-ops accounted for two-thirds of sales two-decades ago, a sign of the growing importance of condos in the residential market.