By Orlando Lee Rodriguez
Absorption within New York City has been remarkable, considering that all of it has taken place without the benefit of financial sector expansion.
However, if banks and other financial services were to begin to hire again, the city may experience an era greater than the ‘Roaring Twenties’ a century ago, analysts say.
“What I find remarkable about New York City’s recovery is that it managed to absorb a tremendous amount of office space without any growth from banks,” said Kevin Thorpe, chief economist at Cassidy Turley. “New York City leads the country in demand for office space by a wide margin. Technology, advertising, marketing, consulting and health care, that’s really what’s powering growth.”
“I don’t know if the banking sector is going to re-emerge as an economic engine, but if it does, oh my goodness. This can morph into the strongest economic period in New York City history,” he said.
Speaking at Cassidy Turley’s ‘State of Real Estate’ 2013 New York conference held at Midtown’s St. Regis Hotel, Thorpe, citing research from the McKinsey Global Institute, pointed out that New York remains in a strong position to continue to grow over the next decade, as opposed to other cities around the country.
“The cities I have the most confidence in going forward are the global gateway cities,” he said. “In this recovery, there has been a clear accelerating trend of more people and business moving to these cities. People generally gravitate to the cities or areas that offer the greatest economic opportunity. Cities that were most likely to be global growth leaders between now and 2025, out of the top five, New York was number one.”
Thorpe also described the fourth quarter GDP numbers as the “very best weak GDP number” he had ever seen. According to data he presented, real GDP grew by three percent during the fourth quarter of 2012.
While pointing out New York City’s strengths, Thorpe did warn of threats on the national horizon, particularly in relation to potential residual effects from quantitative easing.
Saying he felt that QE3 would continue until unemployment falls below six percent, Thorpe warned that the more than tripling of asset holdings by the Fed could cause the economy to relapse into recession once the stimulus stops.
“Maintaining price stability going forward at some point is going to be extremely difficult,” he said. “When I model forecasts for 2015 and 2016, it screams inflation [and] higher interest rates are coming. Our forecasting sees that inflation will be five percent in 2015, 10 year treasuries very close to that between four and five percent.”
“If the Federal Reserve finds a way to wind down this program, it will be okay, or we could easily fall into this hyper inflationary scenario which could lead to a worse recession than the one we just had,” he said.
Thorpe said it is possible that the higher unemployment rates we have seen over the last four years may become part of the economic landscape for the foreseeable future, particularly as jobs become more skilled and/or eliminated due to technological improvements.
“So is this the new norm, high unemployment?” he said.
“Even with healthy job creation in New York City we’re still at 9.2 percent, double what it was before the recession. In my view, this is a structural problem. There is a certain percentage of people who do not have the skill set to contribute in the current labor force and technology is part of the story.”
