NY looking better and better in world markets.
"As a center for international trade and tourism, the best thing that can happen to New York is for the City to become a relatively inexpensive place to visit and conduct business," says Robert L. Billingsley, executive vice president of Colliers ABR, Inc., the metropolitan New York partner in Colliers International.
"New York's multi-national, intensely urban environment already makes it the first choice among most foreign corporate and property investors," says Billingsley. "The cheaper dollar and lower property values are spurring investments by Germans, Swedes, Koreans and people from Asia Pacific outside Japan, specifically Singapore and Hong Kong."
New York (Midtown) at $27.72 per square foot (PSF) is no longer America's most expensive city. That honor belongs to Washington, D.C., at $32.73 PSF, 26th place on the Colliers Worldwide Index, between No. 25 Dublin at $33.30 PSF and No. 27 Glasgow, $32.12 PSF. Boston, at $29.80 PSF (No. 31 globally), is the U.S.'s second most expensive city.
Billingsley predicts that the "dollar will very shortly stabilize, at which point many of the foreign investors who wish to invest their capital in the U.S., and in particular New York, will move off the sidelines and start buying both corporations and longterm investments such as commercial office buildings, hotel properties and retail locations in both Midtown and Downtown Manhattan."
Why US Looks Like a Bargain
Compared to New York, rents in Bombay, the world's third most expensive city at $103.48 PSF, are nearly four times that of the Big Apple. Bombay is followed only by Hong Kong at $138.18 PSF, and Tokyo at $123.44 PSF in the Colliers survey.
Tokyo's rents have dropped nearly $6 PSF in the past six months, a sign of declining demand and Japan's sagging economy. Hong Kong's $4 PSF rise pales in comparison to Singapore, which, fed by strong interest from multi-national firms, jumped to $70.11 PSF, a $23 rise - nearly 50 percent since mid- 1994 - catapulting it to No. 8 on the Colliers Top 10 list. Osaka, Japan was the third new entry in the Top 10, taking the ninth spot at $61.39 PSF.
One emerging market which dropped out of the Top 10 was post-peso devaluation Mexico City, No. 7 in Colliers' last survey, but now No. 12 at $52.87 PSF. a $4.50 drop since mid-1994. While demand for top office space remains high, Colliers expects effective rents to continue to fall. The completion of several building projects is expected to boost vacancy rates, while dollar-based bank financing for projects has left developers with large debts and greater incentive to cut deals with tenants, particularly strong foreign companies. In dollar terms, rents in the first-half of 1995 are expected to drop up to 25 percent.
Issued twice-yearly, the Colliers survey compares costs of doing business as expressed in effective rents (base rent, operating costs, taxes and landlord concessions), and quoted rents (without landlord concessions) for prime space. It defines "Class A space" as first class office buildings in a prime location. This report quotes effective rents.
Indian Liberalization Bolsters Economy
Bombay's burst into the Top 10 is the result of burgeoning foreign capital inflows, which began in June 1991 with the Indian government's radical economic liberalization program. (India's $260 billion gross domestic product represents a 4.9 percent growth rate and a 5.5 percent growth is projected by Colliers for 1995). Effective rents in India's financial center are projected to increase by close to 10 percent for 1995. Tenants in Bombay are frequently asked to pay their rental amount for the full term of the lease in advance, plus a deposit equal to 50 percent of the capital value.
In other "hot" emerging markets, Rio de Janeiro, Brazil was No. 11 at $52.88 PSF, and Ho Chi Minh City, Vietnam was No.14 at $48.33 PSF. Shenzhen, China at $48 dropped five places to No. 15 despite a $.60 PSF rise.
In Europe's top markets, Frankfurt, $48.83 PSF rose almost a dollar, but dropped from No. 9 to No. 13 worldwide since Colliers' last report. Paris, at $54.20 PSF, dropped $2.60 PSF, from No. 8 to No. 10. London, at $74.87 PSF, was up $3.40, but fell from No. 5 to No. 7.
World's Ten Best Bargains
In contrast, the world's most affordable business markets may be found in Canada, Australia and New Zealand.
Edmonton offers the world's best downtown office space value, $9.42 PSF, while its suburbs are just $8.14 PSF. Winnipeg's suburbs were the biggest overall bargain, at $8 PSF. followed by Edmonton: Montreal's suburbs, $8.34; Toronto, $9.57; Ottawa, $10.85 PSF, and Vancouver, $13.44 PSF, completing the world's ten cheapest suburbs list. The bottom ten downtown bargains also include: Calgary, $10.53; Perth, $11.04 PSF; Wellington, $12.72 PSF; Auckland, $12.75 PSF; Christchurch, $12.80 PSF and Melbourne, $13.27.
In the U.S., Houston is the biggest downtown bargain, at $12.80 PSF, while Memphis, $13.57 PSF, Louisville, $13.58 PSF, Denver $14.60 PSF and Dallas $15 PSF also offer economical business conditions.
No Room at the Inn
Three of the 95 downtown city office markets surveyed by Colliers - Shanghai, Beijing and Darwin (Australia) - achieved zero vacancy. Other "tight" markets include Victoria, British Columbia at 1.4 percent vacancy, while Charlotte, NC; Belfast, Ireland; and Santiago, Chile, have 2 percent vacancy and Hong Kong, Guangzhou and Athens have 2.5 percent vacancy - real landlords' markets.
At the opposite end of the scale, Colliers reports that tenants' markets may be found in: Surabaya, Indonesia, 36.5 percent vacancy; Caracas, Venezuela, 35 percent vacancy; and in the U.S., Hartford, CT at 24 percent vacancy and Los Angeles, 23.36 percent vacancy. Not far behind are Perth, Australia, 23 percent vacancy, Bangkok, Thailand, 22.9 percent vacancy and Dallas, 21 percent vacancy.
US Markets in Modest Recovery
Of 33 American downtown and 32 suburban markets surveyed by Colliers, a majority reported increased market activity and most have experienced a slight increase in demand. Declining vacancy rates also signal a real estate revival, with 82 percent of the U.S. downtown offices surveyed reporting a drop in overall vacancy and 72 percent reporting a vacancy decline in suburban office markets.
Along with the declining vacancy rates have come rent increases. Colliers found that 64 percent of downtown and 69 percent of suburban markets reported an effective rental rate increase in the second half of 1994. Neither the improvement in vacancies nor higher rentals is likely to support a return to speculative development, as lenders and developers exercise caution to avoid a repeat of the 1980s' boom-and-bust cycle.
Colliers offices in several markets, including Atlanta, Miami, Minneapolis and Portland, OR, are predicting a limited amount of speculative development in the near future. In the markets where construction is underway, it is overwhelmingly of pre-leased and build-to-suit projects.
A little growth, very little construction, declining vacancy rates, some shortages of large, contiguous spaces and rising rental rates characterize most of the Northeast.
More affordable downtown markets in the Northeast include Hartford at $21.63 PSF New York (Downtown) at $20.38 PSF Philadelphia at $18.53 PSF and Baltimore at $18.45 PSF. Washington has the tightest space market, with a 4 percent vacancy rate, compared to 12 percent in Boston, 12.1 percent in New York Midtown, 17.1 percent in Baltimore, 17.4 percent in New York Downtown, 17.5 percent in Philadelphia and 24 percent in Hartford.
In the region's suburbs, Boston leads with $22.50 PSF; then Washington D.C., $21.90; Northern New Jersey, $19.80; Fairfield County, CT, $18.72 PSF, Philadelphia, $18.44 PSF; Baltimore, $17.34 PSF, Westchester County, $14.50 PSF and Hartford, $12.29 PSF. Here again, D.C. has the tightest market with a 7 percent suburban vacancy rate, while much higher rates may be found in Northern New Jersey, 16 percent; Hartford, 19 percent, Fairfield County, 19.81 percent and Westchester County 21 percent.
Relocations Aid Southeast markets
Inexpensive facilities and operating costs combined with abundant labor supply have made many of the Southeast's markets an attractive target for relocation.
Downtown Ft. Lauderdale has the highest rent at $22 PSF, followed by Miami, $21.47 PSF; Atlanta, $19.90 PSF; Charlotte, $19.80 PSF; Charleston, $19.48 PSF; Richmond, $15.95 PSF; Columbia, $15.58 PSF; Dallas $15 PSF; Memphis, $13.57 PSF and Houston, $12.80 PSF.
Ft. Lauderdale became the region's most expensive location with a $2 or 10 percent increase in effective rent since mid-1994, caused primarily by the end of landlord concessions, signaling a tight market favoring owners. Downsizing corporations have been replaced by an increasing volume of tenants, creating a shortage of space.
Charlotte, which also experienced downtown rent increases topping $2 PSF due to a phase-out of rent concessions, had the lowest vacancy rate at 2 percent, followed by Columbia at 8 percent, while sizable vacancy rates could be found in Miami, 15.2 percent; Atlanta, 16.4 percent and Dallas, 21 percent.
Rents rose 8 percent from mid-1994 in Atlanta's suburbs, a combination of higher base rent and shrinking concessions, paced by one million square feet of absorption, with the northern suburbs taking the lead. Suburban rents for Atlanta are $21.20 PSF; Memphis, $17.50 PSF; Charlotte, $17.30 PSF, Ft Lauderdale, $17.25 PSF; Dallas $16 PSF; Charleston, $15.68 PSF, Miami, $15.58 PSF; Richmond, $15.50 PSF and Columbia, $14.55 PSF.
Midwest Manufacturing Leads Market
Increasing rental rates in the Midwest reflect a resurgence in manufacturing and the automobile industry, which made the region one of the strongest in the U.S. last year.
Indianapolis led downtown effective rents at $21.01 PSF, up nearly $4 from six months ago, while Chicago, $20.87 PSF; Minneapolis, $20.86 PSF; Detroit, $19.33 PSF; Milwaukee, $19.17 PSF, Cincinnati, $18.62 PSF and St. Louis, $15.50 PSF, all experienced rent rises. Louisville, at $13.58 PSF, remained unchanged.
Minneapolis downtown rents rose $1.50 PSF as vacancy rates reached regional lows of just above 5 percent, and Colliers predicts that the absence of large blocks of space will continue the upward pressure on the market.
The suburbs of Detroit had the region's highest effective rents, $24 PSF, $3 higher than any downtown rents. Chicago's suburbs followed with $21.15 PSF; Minneapolis $20.49 PSF; and St. Louis $19.50 PSF at the high end, while Indianapolis, $16.05 PSF and Louisville, $15.95 offered relative bargains.
California Recovery Uneven
The West Coast showed mixed results, with half the cities surveyed experiencing increased rents. But California is still hurting from the recession - witness Los Angeles' 23.36 percent downtown vacancy rate - followed by San Diego, 20.7 percent and San Jose, 17.8 percent.
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|Title Annotation:||New York City|
|Publication:||Real Estate Weekly|
|Date:||May 10, 1995|
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