Housing demand still strong in New York despite job losses

Real Estate Weekly, March 5, 2003

Marcus & Millichap Real Estate Investment Brokerage Company, the nation's largest real estate investment brokerage firm, recently released a special multi-family and office report for Manhattan, which finds that despite recent job losses, demand for multi-family housing and office investments in New York City remains strong.

"After struggling in 2002, economists are forecasting positive job growth for Manhattan in 2003, with the City gaining 20,000 jobs overall," comments Mitchell LaBar, senior vice president and regional manager of the firm's Manhattan office.

Following are some of the most significant aspects of the report:

* Multi-family developers delivered more than 4,400 units to the market in 2002, down slightly mm 2001. Construction will slow to 3,600 units in 2003. High barriers to entry keep construction at a moderate pace in Manhattan.

The faltering economy and uncertainty in the aftermath of Sept. 11 are still suppressing construction activity, with 3,600 units anticipated for delivery in 2003.

* Multi-family vacancies rose to 4.2% in 2002 and farther market softness is expected, with vacancy peaking in 2003 at 5.1% before demand begins to stabilize. Economic uncertainty early in the year coupled with the lag of the real estate market behind the economy will allow vacancy to reach 5.1% in 2003.

* Investment activity will remain stable in 2003. Multi-family properties under $5 million with some rehab required may provide the best prospect for price appreciation. Investment sales volume was strong in 2002, with an estimated $1.4 billion in multi-family assets traded. Capital flowing away from the stock market was reinvested in more stable multifamily assets.

* Office construction also tapered off in 2002, with 2.5 million SF delivered. Four million SF are expected in 2003, as a few large projects that began prior to Sept. 11 are completed. Weakening employment has caused many plans for office buildings to be shelved until the economy recovers and a need for office space becomes obvious or an anchor tenant is signed.

* Office investment sales volume was strong in 2002, with an estimated $6.5 billion in office properties sold in Manhattan. The dollar volume of transactions was down from the $7.5 billion spent in 2001, but was concentrated in fewer, typically larger, transactions. Several trophy buildings were sold, including the $1 billion sale of 399 Park Ave.