Weekly CRE News Roundup: Global CRE, Manhattan Offices, & San Fran Recovery
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Happy Friday! Welcome to yet another edition of our weekly commercial real estate (CRE) news roundup, where we guide you through some of this week's most notable CRE events, reports, and speculations.
In case you missed it, here's last week's edition, where we discussed hidden cost disclosures, bank loans, office distress, and more.
On today's agenda:
- According to recent data from research firm MSCI, the US commercial real estate market still dominates the global stage despite economic headwinds.
- Believe it or not, Midtown Manhattan's office space market boasts some of the highest net absorption in the nation thanks to new construction and significant influxes of new tenants.
- Artificial intelligence companies looking for larger spaces are flocking to San Francisco, propping up the city's struggling office space market.
Let's get started.
#1 – Despite Recent Turbulence, US CRE Still Dominates Global Stage
The US commercial real estate market has seen its fair share of achievements and difficulties since the onset of the COVID-19 pandemic. But despite the sludge and losing nearly $600 billion in value, the US CRE market still holds the largest percentage of professionally managed CRE assets in the world, and it's not even close.
Other sectors covered in MSCI's report include EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific). The Americas are home to about 43.9% of the global, professionally managed CRE market; EMEA houses 30.4%; and APAC 25.7%. According to MSCI, the total size of the US CRE market stands at around $5.4 trillion. The runner-up? China, at $990 billion.
MSCI also states that the professionally managed commercial real estate market in the Americas was the only one to grow year-over-year: According to their report, it notched up by about 0.6%. Over the same time period, the EMEA market declined by 9.8%, and the APAC market saw a 4.6% drop.
All this is to say that perspective is everything. The double-edged sword of rising inflation and interest rates has taken its toll on CRE investment activity, but even amidst the damage, things could still be worse.
#2 – And the Winner for Hottest Office Sector Goes to…Manhattan?
Yes, you read that correctly. Thanks to new construction deliveries bolstering occupancy rates, Midtown Manhattan's office space market is still one of the hottest in the country despite wavering property values and unsustainable debt.
Over the last year, Midtown Manhattan's office space market saw approximately 3.3 million square feet in positive net absorption, a significant differentiator that sets it apart from other cities in the country struggling with similar issues, like Chicago and San Francisco. This is not to say that it's all peaches and cream in the Big Apple, but corporate attention still seems to sit squarely on the Empire State.
One of the primary contributors to this apparent resilience is the fact that tenants are filling expensive office spaces in Manhattan at a reasonable rate. The borough recently added nearly 17 million square feet of new office space, and the data proves that, simply put, people want it.
Despite the nationwide, crisis-driven narrative surrounding the sector, it seems as though any further damage to New York City's office space market due to declining property values affecting revenues would fall short of that. Sure, the impact would be noticeable, but far from catastrophic.
#3 – San Francisco's Office Space Market Continues to See Reprieve
In a city riddled with layoffs, downsizing, and high vacancies, artificial intelligence (AI) companies are sweeping in to save the day. Or so it seems. What they're actually doing is looking for large, highly expansive office space properties which, in turn, is helping the city recover.
Specifically, said AI companies seem to be have been chasing office spaces larger than 50,000 square feet in San Franciso since March of this year. The influx of corporate activity helps not only an office space sector that's been hyperventilating in fear, but it also helps address some of the social issues the city's been struggling with since the onset of the pandemic, like homelessness and drug usage.
All this is not to say that San Fran's office space sector is enjoying a return to pre-pandemic norms, because it's not. Considerable challenges still litter the road ahead: Unlike Manhattan, San Francisco is on the opposite end of the spectrum, with utilization rates lower in comparison to other metros like Chicago, Seattle, Los Angeles, and Boston.
Other Goings-On Around the Industry
Other notable events happening in the industry recently include:
- A Resurgence in Chicago Home Prices: The average cost of a home in Chicago has recently surpassed that of other cities in the nation.
- Another Win for Manhattan: The city's retail sector is enjoying similar success to that of its office space sector thanks to growing tourism and lower asking rents.
- Remote Workers Working Harder: Recent studies are finding that employees who work remotely are working harder than their in-office counterparts.
- A Drop in CRE Sales Volume: The top 25 cities in the US saw CRE deal volume drop by as much as 75%.
- Another Interest Rate Hike: The Fed hiked the overnight funds rate by another 25 basis points this week, and another rate hike was not ruled out.
Thanks for reading this week's commercial real estate news roundup! Until next week, stay diligent, do your research, and happy investing.
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