Commercial Real Estate in Manhattan Is Now Overvalued

Most New York real estate executives believe commercial property in Manhattan is overvalued compared with real estate values in other major global cities, according to a new survey by accounting firm Marks Paneth & Shron LLP (MP&S).

Further, the real estate executives say the New York commercial real estate market remains years away from recovering from the recession’s impact and getting back to 2007 levels of rents and occupancy rates.

Following are the findings from MP&S’s Gotham Commercial Real Estate Monitor, a survey of over 100 top commercial property owners, brokers, agents, managers and other real estate professionals:

• 51% of commercial property executives say commercial real estate values in Manhattan are overvalued (8% say highly overvalued and 43% say moderately overvalued). Fewer than a third — 32% — think commercial property in Manhattan is “fairly valued.”
• 31% of executives say there’s a high or moderately high risk associated with investing in commercial real estate in Manhattan. (Twenty-five percent said moderately high, and 6% said high.)
• Nearly two-thirds of executives forecast that commercial occupancy rates in Manhattan will remain below 2007 levels well into 2014, perhaps even past 2016. In terms of leasing prices, a quarter believe prices are currently at the 2007 level, but 29% say it will take up to two years to reach that level, and another 29% think leasing prices won’t recover until 2016 or later.
• When it comes to the next office construction boom, a quarter think it won’t occur until between 2014 and 2015, and 42% say it won’t happen before 2016.
• Most executives (56%) believe the global economy will need to recover before commercial real estate sales in Manhattan escalate.

“Manhattan commercial real estate may still be something of a gold standard, but property executives clearly believe it has seen better days,” said William H. Jennings, Partner-in-Charge of the Real Estate Group at Marks Paneth & Shron.

Mayor Bloomberg Gets Kudos from Commercial Real Estate Executives

More than 75% of New York commercial real estate executives give Mayor Bloomberg high marks — at least for his support of the interests of commercial property owners in Manhattan. In fact, 33% say the Mayor has done an “excellent” job, and 43% say he’s done a “good” job supporting commercial property interests.

Implications of Commercial Mortgages Coming Due in 2013

Commercial mortgages on many Manhattan properties are coming due in 2013. But most real estate executives do not expect a spate of foreclosures.

• 65% of executives believe owners of underwater commercial properties in New York will not opt foreclosure.
• 83% believe banks will refinance the properties at current low rates.
• But most executives (60%) believe owner refinancing will result in cost-cutting reductions in the number of people employed at commercial properties in the city.

Methodology

The Gotham Commercial Real Estate Monitor survey from Marks Paneth & Shron represents the findings of a survey of over 100 top commercial real estate professionals in the New York City market. They included owners and managers of commercial property and commercial real estate brokers, agents, attorneys and accountants specializing in the sector. The research employed a dual-mode methodology of self-administered questionnaires completed either online or on paper by respondents. Interviews were completed between November 16, 2012, and January 4, 2013.