Nonprofit and Public Sector Has Record Year in NYC
- Apr 13, 2018
New York City has had a long and tight history with the not-for-profit and public sector, with some of its largest and most stable employers falling into the category. The state counts more than 91,000 active organizations, which make up a large part of the local economy. The sector also continues to lead the nation in both the number of people employed and wages, according to the Bureau of Labor Statistics.
Despite the recession hitting the sector, resulting in funding shortfalls from the government, the private sector and corporate partners, public and nonprofit employment rose continuously throughout the period. Demand for office space among the sector contributed to record-high commercial real estate lease and sales transaction actvity in 2017, which began picking up at a gradual pace in 2015, a new study from Cushman & Wakefield shows. Mergers, lease expansions and major cash-outs boosted the dynamics of the sector.
Nonprofit and public organizations leased more than 6 million square feet of space in 2017, fueled by 12 leases signed in the Manhattan submarket that were greater than 100,000 square feet each. Seven of those leases were 250,000 square feet or greater. These amounts increased the average lease size to 46,839 square feet in 2017—76.4 percent higher than the previous year.
Despite the submarket’s success, Long Island City actually recorded the largest lease of the year. In July 2017, New York City Housing Authority signed a 587,344-square-foot lease at 23-02 49th Ave., expanding its presence by 155,000 square feet in Westbrook Partners and Andrew Chung’s property until 2037.
Most of the nonprofit and public sector’s leasing activity in New York City was in the Manhattan submarket, totaling 4.9 million square feet. The sector only trailed the financial services and TAMI sectors, which leased 8.8 million square feet and 5.7 million square feet, respectively. With nonprofits often seeking space in value-oriented assets, average rents clocked in at $53.31 per square foot, well under the market average of $72.53.
While nonprofits signed the most leases in 2017, completing 48 of the 129 leases in Manhattan, government agencies leased the most space, signing 2.7 million square feet of leases last year and more than doubling the amount from 2016. Medical tenants, the top leasing nonprotfit sub-sector in 2016 with 2.1 million square feet of leased space, recorded a major decrease, falling behind with 1.2 million square feet leased in 2017.
Additionally, the average lease length signed by nonprofits was more than 12 years in 2017, compared to the market’s nine-year average. This was partly due to a trend among large not-for-profits signing on for leasehold condos. In this situation, landlords lease the condo for a non-cancelable, 30-year term by making the tenant (usually a state agency), legal owner. Leasehold condo owners enjoy a hefty tax break not otherwise available to 501(c)(3)s.
Soaring sales activity
Although sales in New York City dropped significantly in 2017, transaction activity in the nonprofit and public sector was robust, increasing 54.9 percent over the past two years, compared to the average number of transactions between 2011 and 2015.
Buying and selling activity in the sector was fairly balanced, as organizations made 45 purchases and 46 dispositions in 2017, while the 11 remaining sales involved two nonprofits and/or public sector businesses. Among the submarkets, Manhattan led the way with 38 closed transactions. A total of 80 assets changed hands in 2017, compared to 48 in 2016, although transaction volume remained flat at $1.2 billion.The average price per square foot in the sector for 2017 was $540, nearly the same as the $544 city average.
Cushman & Wakefield predicts that most businesses from this sector will strive to keep their Manhattan footprint or prefer getting as close to the urban core as possible. They will also make use of trends such as collaborative and open spaces. Additionally, the New York City office pipeline consists of 22 million square feet of new and redeveloped office space, which will continue to bolster the sector’s interest in the city.
“2017 was a big leasing year for New York City’s nonprofit and public sectors,” Cushman & Wakefield Managing Director Robair Reichenstein said in a prepared statement. “The uptick in leasing was fueled by a handful of large transactions greater than 300,000 square feet, as well as robust leasing activity by government users throughout the city.”
Image courtesy of Cushman & Wakefield