Real Estate Weekly
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Office leasing starts New Year on a roll

By Konrad Putzier

Manhattan’s office market ended the year 2014 with strong gains, but a growing number of execs fear commercial real estate may be heading for a bubble.

According to a new report by brokerage DTZ, demand for Manhattan offices has reached its highest point since 2005.

Office leasing is robust, but executives are concerned about
Office leasing is robust, but executives are concerned about pricing.

Availability fell by 1.5 percentage points to 9.3 percent in 2014. Class-A rents rose 7.1 percent year-over-year to $77.25 per s/f and Class-B rents rose 7.4 percent to $59.24 per s/f – a new record.

The surge in office leasing went hand in hand with employment growth, as the total number of jobs in Manhattan grew by 2.0 percent year-over-year to 4.08 million in November 2014. But while the growth in office leasing should give commercial real estate investors reason for optimism, a growing number of executives fear the sector is heading in the wrong direction.

According to a survey by accounting firm Marks Paneth among 124 real estate professionals, 19 percent of respondents reckon commercial properties are highly overvalued and a further 55 percent think they are moderately overvalued – up from 17 and 42 percent, respectively, last summer.

37 percent of surveyed real estate professionals believe low interest rates have already created a bubble, while a further 29 percent believe they may be creating one.

The vast majority of respondents believe rents will continue to rise in 2015, but evidently think investors are overpaying for office buildings.

In recent years, sales prices for office buildings have risen far more rapidly than rents, pushing down cap rates (the relation between a building’s sales price and its annual income).

For example, In July 2014 investment firm Savanna sold the Twitter headquarters at 245-249 West 17th Street to New York REIT for $335 million. It had bought the 282,000-s/f property for a mere $75.8 million in November 2012. микрозайм

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