New Developments Lead The Rental Market Boom In New York City
The older historic buildings give way to new innovative developments cropping up all across NYC.
The skyline of a city somehow feels timeless, like a still from a movie. A geographic birthmark that represents at a glance both the history and the future of a place and its people. Yet, in reality, the skyline of any given city changes on a daily basis, and no more so than New York, where historic buildings jostle with a slew of new developments increasingly cropping up across the five boroughs.
As the city grows and changes, it finds both detractors and champions. Purists will argue that new construction is bastardizing New York’s unique footprint and architecture as block-wide developments tear, seemingly unapologetically, through historical areas. Innovators, on the other hand, see the potential for the systemic change these new developments offer, their efficiencies and malleability.
And, as far as New York goes, it seems the innovators are tipping the balance, as demand for forward-thinking new developments reaches a zenith. Significant levels of citywide construction will always be an indicator of a healthy market, and NYC’s thriving rental market is ultimately driven by the rules of supply and demand. People want new developments—so developers build them. It’s a seemingly simple equation, and yet, purists and economists will always ask—will this zeal for new development in fact outrun supply and demand, and instead fall stall the rental market’s resounding momentum? More so, with all this demand for new construction, how will older buildings ultimately survive?
Well, according to Bisnow, economists need not worry. Boasting video footage of an expert panel at real estate agency CBRE‘s Q3 Media Event, the commercial real estate news site argues that there is no present danger of overbuilding commercial space in New York, as huge numbers of tenants continue to seek out these new developments. Purists, however, might find cause for concern. According to CBRE’s vice chairman and agency group co-head Howard Fiddle, “[Older] buildings priced correctly will lease. Those that aren’t will languish.”
So why is it that older buildings have fallen out of favor? The answer is pretty straightforward. Infrastructure and amenities are the first two considerations when developing plans for a new construction, and with only so much square footage in NYC, developers are keen to use every inch of their buildings efficiently. And contrary to belief, this ability to adapt to tenants’ needs or a location’s particular foibles from the ground up makes a new construction significantly more affordable than adapting existing buildings. Sure, asking rents are higher, but for the companies behind these developments, new construction is both efficient and cost effective.
That’s great for developers, but what about tenants? Aren’t these higher prices off-putting to them? Well, it seems that new developments establish their appeal in more than just financial terms: These innovative new projects—which boast facilities such as restaurants and casual eateries, functional art installations, fitness centers, green spaces, community spaces and even on-site farms—speak to the evolving needs of modern tenants. While older buildings can offer historic charm, reputation and prestige, they often do not meet the daily needs of potential tenants, especially in comparison to their newer cousins.
And you better believe there are a lot of tenants out there. Keeping in mind supply and demand, since 2010, Manhattan has added approximately 2.9 million square feet of office space per year. Even with the city pulling 1.6 million square feet of inventory off the market each year, the city is still adding 1.3 million square feet of office space annually. And it’s not just Manhattan that is booming: Brooklyn is seeing strong activity in the rental market, with three out of the four biggest deals in the borough taking place in 2016’s third quarter. Even Roosevelt Island is getting in on the act, as plans for the Cornell Tech Campus—its academic and office space, education center and hotel, housing units and community space all due for completion in 2017—begin to really take shape.
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