The property market in New York

An urban renaissance is attracting the global tech industry to the Big Apple.

8 April 2014, Words by Paul Tostevin

 

New York constantly jostles with London at the top of global city rankings. The same is true of our live/work index, with London recapturing the second place from New York by the thinnest of margins. The cost of renting housing and office space for the same group of people in each city is almost identical, leaving little scope for one to out-compete the other.

The Big Apple has seen residential rents grow by 36% since 2009 and capital values by 31%. In the past two years, however, capital values have grown at a faster rate than rents, driven by record low levels of inventory. While yields have moved from 6.9% to 6.1%, New York remains attractive from an income-return point of view.

New York City has been at 
the centre of America’s urban renaissance in recent decades. The city’s crime rate is low, new and innovative public spaces are being created, such as the Highline, and the waterfront is being opened up. The city is now even considered a desirable place to bring up children, out-competing the suburbs and attracting returning empty-nesters.

New York’s renaissance has gone hand in hand with its dominance of the global tech industry. A five-hour flight from the West Coast, or seven hours from Europe, the city offers a vibrant urban environment and the kind of alternative space so desired by tech start-up companies.

‘Silicon Alley’, clustered around the Flatiron District, SoHo and Tribeca, and Dumbo in Brooklyn, are all areas experiencing surging demand for small and medium-sized office space. Office rents for the creative/tech company are up 33% from a December 2010 low. This is a higher rent increase than the 20% for financial office space. The costs of offices of a type and in locations favoured by creative industries are the highest of our 12 cities on a $ per square foot basis (see chart below).

The downside risks for New York are a shortage of suitable accommodation, both residential and commercial. Many large banks are splintering and downsizing, demanding smaller, bespoke spaces. As a consequence, the midtown office market, dominated by 
large, corporate headquarters, has remained relatively flat. A dearth of new supply in the residential markets is a legacy of the wider downturn, with younger New Yorkers particularly squeezed by high rents.

Cost of creative office space

 

 
 

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