In the first quarter of 2007, the Manhattan housing market notched a record number of apartment sales for a single quarter. In the same three-month period, the Manhattan office market recorded its lowest vacancy rate since early 2001. Is this simultaneous success a coincidence?
Maybe. But probably not.
While no direct correlation exists between the Manhattan office and housing markets, the statistics for both in the last several years certainly support an indirect one. And the respective first-quarter roars from both reinforce the notion of this mild symbiosis.
At the start of this decade, even before Sept. 11, the Manhattan housing and office markets confronted grim realities. Vacancy rates were rising in the office market, and office rents dropping after a wonderfully successful 1999 and 2000 for landlords. And, in the housing market, sales of apartments in 2001 were down nearly 11 percent from 2000.
The national economic recession and the dot-com bust fueled a sense of pessimism about both markets, and the prospects for each dimmed only further with the terrorist attacks.
In the office market, 2000 had been a very good year for landlords and their brokers. The vacancy rate for office space dwindled to below 5 percent from early-90’s highs of nearly 20 percent, according to the brokerage Cushman & Wakefield. The average asking rent for Manhattan space in 2000 reached nearly $51 a square foot, up from just over $38 in 1999, and nearly double what it was coming out of the recession of the early 1990’s.
In the housing market, 2000 turned out to be a sales peak for the 11-year span from 1990 through 2001. And prices in 2000 were higher than in years before, with the average sales price, according to the appraisal firm Miller Samuel, jumping 27 percent from 1999’s annual average of $518,137. The price average would rise only 9 percent from 2000 to 2001.
But, oh, how things changed quickly from 2001 onward.
The housing market rebounded first. Sales jumped 14 percent annually from 2001 to 2002, with most of those sales closing in the first half of the year—perhaps a response to sellers leaving the city in the wake of the terrorist attacks. But by 2003, sales settled into a steady, strong pattern, buoyed by low interest rates, fresh development and a stew of bubbly media coverage of the housing boom.
Nearly 3,500 co-op and condo sales closed in the first quarter of this year, according to Miller Samuel, a quarterly peak stretching back to at least the late 1980’s.
Prices increased too, with the average sales price of a Manhattan apartment climbing above $1 million in mid-2004, and the average price per square foot reaching $1,000 by the end of 2005, a position it lost in the last quarter of 2006—only to regain it the following quarter.
By 2003, the office market would achieve a similar buoyancy, though, of course, by different measurements. The vacancy rate—a top barometer—started what is now a more than three-year decline in late 2003, pushing back against the melancholy expectations understandably pervasive in the previous two years.
The rate drifted to 5.7 percent in the first quarter of 2007, according to Cushman & Wakefield, its lowest point since early 2001. At the same time, capping years of increases, the average asking rent for Manhattan office space hit an all-time quarterly high of $53.43 a square foot in the first quarter.
Such simultaneous success seems reasonable enough, given the city’s strong economy.
The citywide unemployment rate remains below 5 percent. Also, the financial-services industry, which leases more Manhattan office space than any other industry (and from which, one can imagine, spring many well-heeled homebuyers), has had a run of good years this decade, with the last two setting Wall Street bonus-season records.
And the city keeps adding newcomers, especially in Manhattan. The borough’s population, according to Department of City Planning estimates, bloomed by 4.5 percent—or over 69,000 people—from 2000 through 2005.
“To me, it’s logical,” said Jonathan Miller, the C.E.O. and president of Miller Samuel. “When you have a strong economy, you have higher housing prices and a lower vacancy rate in the office market.”