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SMPS-NY's Principals' Breakfast: Market Forecast/Market Trends in 2012
NEW YORK, N.Y. - Leading experts in the real estate, design, construction, economics, media, and legal sectors discussed the state of the economy and what the future holds, at the SMPS-NY's Principals' Breakfast: Market Forecast/Market Trends, held on January 18, 2012 at the CUNY Graduate Center. SMPS National Chief Executive Officer Ronald D. Worth, CAE, FSMPS, CPSM, CPC, welcomed everyone to the year's kickoff event.
Overall, with positive, but guarded optimism, the industry experts identified local and global market trends and areas where opportunities, challenges, and potential minefields lie for the architecture, engineering, and construction (AEC) community in the foreseeable future. Issues ran the gamut from commercial real estate leasing and development, the uptick of technology and social media in the economic landscape and litigation, to the increased importance of private education, sustainability, resilience, building security, and public private partnerships in the current and future economic climate. Highlights include the following:
Forecasts and 2012 Trends
According to Peter Buckey, vice president of Cassidy Turley, specializing in leasing services, major trends in commercial real estate trends include:
* "Corporations will do their best to renew in and relocate to smaller, more efficient spaces. Capital expenditures will continue to be a major consideration in evaluating options.
* Strong sectors will be education, social media and technology and "small" finance - boutique, niche firms formed by talented individuals who leave larger banking institutions.
* Weak sectors will be banking and finance."
Buckey added that "For the New York region's real estate, design and construction industry, the bang for the buck will continue to be of relatively good value through 2012. General contractors and subcontractors will continue to be under pressure in terms of receivables. Collecting money in this environment is difficult. Slow payments may cause more, smaller firms to go under. Buyers of construction services should also beware of thin staffing on project oversight. Many companies are running lean."
Barbara Byrne Denham, chief economist at Eastern Consolidated, had a positive but guarded outlook for New York City. "I'm reassured by the developments in the national economy and the improved situation in Europe that the economy is generally on the mend and headed in a positive direction. New York City's economy is weighted down by troubles on Wall Street, but the city is still doing reasonably well, given the negative reports from the industry," Denham said.
The market sector that shows the most promise in the next few years is private education. "Universities --Cornell on Roosevelt Island, Fordham University in Lincoln Center, NYU in the Village, and Columbia in West Harlem --are all expanding, along with private schools. The real need in the city is for the construction of public schools, as so much housing has been built and the city has not kept pace in building schools to house the new students," Denham added.
In the legal sector, "Claims and litigation relating to technology will increase," said Patricia Harris, Managing Partner of construction law firm Zetlin & De Chiara. "In the last few years, the courts have made a huge impact on how discovery, particularly electronic discovery, is managed. When a business gets the first whiff of a potential claim or litigation, it must freeze all electronic relevant electronic records for potential retrieval. This is creating huge IT costs at the outset of a dispute, often before the parties involved are even fully able to articulate what the claims are. We have seen some horror shows, in terms of document production and costs thereof, due to businesses that fail to keep their electronic documents, particularly their emails, organized for easy retrieval in the event of a dispute. All businesses must have a document management policy and stick to it."
Harris added, "Social media is going to create litigation on a number of fronts - from intellectual property to employment discrimination to libel and slander issues. Many of our most junior employees have grown up in an electronic world and do not fully appreciate the separation between work life and private life. A corporate policy on social media do's and don'ts is critical."
Noted veteran construction journalist, Jan Tuchman, editor-in-chief of Engineering New-Record said, "The role of technology in the real estate marketplace and the workplace remains robust. Mobile computing via smartphones and other hand-held devices is proliferating across the industry." Even at the SMPS event, Tuchman noted that attendees were encouraged to send the panel questions using the new yorn.com platform (shorthand for yes or no) on their smartphones.
Tuchman observed that "Sustainability and alternative energy systems remain a strong influence in building design and materials. The disasters that have occurred in the New York area, including an earthquake, tornado, hurricanes, flooding, and power outages, have placed greater emphasis on disaster preparedness and resilience among public and private sector building owners. Risk management should be part of any such strategies."
Architect Barbara A. Nadel, FAIA, panel moderator and security consultant, said, "In addition to threat vulnerability and risk assessments, integrating sustainability and building security for an "all-hazards" approach is an important long-term industry trend, especially for public agencies, to provide the best value for taxpayers. The U.S. General Services Administration, responsible for federal office buildings and the U.S. Department of State Bureau of Overseas Buildings Operations, responsible for embassies outside the U.S., are industry leaders implementing innovative, sustainable, and secure design and operational approaches."
Commercial Real Estate & Development Trends
New development in the commercial real estate market will be modest, but incremental. Adam Frazier, leasing director with Boston Properties predicted:
* Over the next 18 months, there will be approximately 1.3 million square of commercial development delivered to the midtown Manhattan market, of which Boston Properties' 250 West 55th Street project will be 1 million square feet. This additional development will increase the 220 million square foot Midtown market by only six percent.
* There will be many opportunities for renovation and upgrades of existing older properties, to incorporate energy efficient, sustainable design strategies.
* A staggering 71 percent of office buildings in Manhattan are over 50 years old, highlighting the substantial need for new, modern office space, with high ceilings, more vision glass, column free-efficient floor plates, improved energy efficiency, and modern infrastructure and technology.
* "We will continue to see growth in leasing in the technology sector as New York develops into a major international hub for technology firms," Frazier added.
Regarding commercial office leasing, Buckey said, "Lease renewals will continue to be the benchmark to beat. Capital costs and business disruptions are minimized. Landlords want to avoid vacancies, downtime, and lease-up costs as much as possible. Efficient space utilization and sustainability will make relocations competitive. New construction for Class A space in Manhattan, however, is expensive, putting some of the newer space that comes on line out of reach based on pricing."
Buckey added that "Significant office space has been upgraded over the past eight years. The rate at which these upgrades occur is likely to slow this year and possibly beyond, because of the rigor that the deployment of capital is now given, and the uncertainty of how much more rent can be achieved. Buyers and sellers have also had difficulty bridging the gap between the bid and ask, particularly as it relates to the "value add", non-core assets. The perception of value between the two sides has been significant. Buyers see lots of risk. Sellers feel that their assets have lots of intrinsic value."
Local Economy
Buckey maintained a cautiously optimistic outlook. "The job market has held up better than expected. The Fed has committed to an extended period of low rates. Rental rates still look attractive in relative historical terms. The environment for bigger, long-term decisions is improving significantly," Buckey said.
Public Sector and How It Affects The Overall Economy
Asked to address the apparent inability, particularly on the part of the state governments, to find the funds to replace or upgrade aging infrastructure, Harris said, "As Governor Cuomo discussed in his State of the State address, now is the time for public-private partnerships (PPP) to address critical infrastructure issues. In essence, public-private partnership projects use an infusion of private capital and the private sector partner often provides management support as well to the construction project for some agreed-upon financial return. Given the economic stresses currently faced by federal and state governments, PPPs will enable the most crucial projects to move forward without waiting on the availability of public funding."
The NYC Department of Buildings reported that the number of stalled projects has declined. Yet, the number of stalled projects, 638 in 2011, was still 40 percent above the number of those stalled in 2009. Harris said, "Many of the stalled projects are residential and the first hurdle is simply creating demand for the space. In addition, the City could utilize zoning changes and tax incentives to get some of these projects moving forward again."
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MODERATOR: BARBARA A. NADEL, FAIA, is principal of Barbara Nadel Architect, an internationally recognized architectural, planning, and building security consulting firm. She is editor-in-chief of the award-winning industry standard, Building Security: Handbook for Architectural Planning and Design (McGraw-Hill, 2004). www.BarbaraNadelArchitect.com<http://www.BarbaraNadelArchitect.com>
PANEL:
* PETER BUCKEY is vice president of Cassidy Turley. He is an 18 year veteran of NYC commercial real estate, starting with the management team of the World Trade Center in the early 1990s. He joined Cassidy Turley in 1997, as a financial services analyst, before becoming a broker in 2001. www.CassidyTurley.com<http://www.CassidyTurley.com>
* BARBARA BYRNE DENHAM is the Chief Economist at Eastern Consolidated. She writes a series of reports that analyze the state of the city's economy; the real estate market by neighborhood, emerging developments in the New York City marketplace, and the monthly release of New York City employment statistics. www.EasternConsolidated.com<http://www.EasternConsolidated.com>
* ADAM FRAZIER is a Leasing Director with Boston Properties. His team leases and manages their nine building, nine million square foot portfolio in Midtown Manhattan. Prior to working in leasing, Adam was a developer in New York and in Washington DC /Northern Virginia, where he focused on large scale, mixed-use development. www.BostonProperties.com<http://www.BostonProperties.com>
* PATRICIA HARRIS, LEED AP is Managing Partner of Zetlin & De Chiara, a law firm specializing in construction law. The firm represents architects, engineers, developers and owners. They serve as general counsel to the New York Building Congress, state and local AIA New York chapters, and various engineering organizations. Patti's expertise includes office policies and procedures, employee and records management. www.zdlaw.com<http://www.zdlaw.com>
* JAN TUCHMAN is an award-winning construction journalist who serves as editor-in-chief of Engineering News-Record, published by McGraw-Hill Construction. She serves on boards and committees for many industry organizations, including the SMPS Foundation, Columbia University, and the National Research Council. www.enr.com<http://www.enr.com>
About SMPS-NY: The Society for Marketing Professional Services (SMPS) is the premier source of educational and networking opportunities for marketing professionals employed by firms serving the built and natural environment. The New York Area Chapter, founded in 1984, serves marketing professionals who live or work in New York City, Northern New Jersey, Long Island and Westchester. The chapter has more than 250 members from more than 220 of the area's leading, architectural, engineering, and construction firms. www.smpsny.org<http://www.smpsny.org/>.
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