NY Survey: Hurricane Sandy Still Dampens Lower Manhattan Real Estate
- Jul 25, 2013
Nine months after Hurricane Sandy struck the Northeast, a majority of commercial real estate executives surveyed by accounting firm Marks Paneth & Shron think lingering concerns over future flooding in Lower Manhattan could limit interest in commercial properties in the area.
The survey found 63 percent of more than 100 CRE executives interviewed for the June-July MP&S Gotham Commercial Real Estate Monitor said the potential for flooding in Lower Manhattan could increase interest in commercial properties in other parts of Manhattan less prone to flooding. Less than a quarter (24 percent) disagreed and the rest weren’t sure.
When Sandy hit the New York region on Oct. 29, severe and unprecedented flooding damaged many commercial properties in downtown Manhattan including office and apartment buildings, hospitals and other businesses forcing them to close, some for months, or seek temporary space elsewhere in the city. The storm surge flooded tunnels, subways and basements of commercial and residential buildings where crucial communications and operations systems were crippled or destroyed. A Cushman & Wakefield report issued in November stated 41 buildings, representing more than 29 million square feet of commercial space in Downtown Manhattan, were affected by Sandy.
The MP&S survey showed that less than half of the respondents – 43 percent – “are somewhat confident there will be a significant government effort to minimize the potential for future flooding in Lower Manhattan.”
The good news was that fewer property executives said they believe property values have been permanently lowered in the area than those interviewed for the January survey. Only 9 percent responded yes for the summer survey compared to 19 percent in the winter report. More executives – 40 percent –now think there is no impact on property values in Lower Manhattan because of Sandy compared with 26 percent in January.
William Jennings, Partner-in-Charge of the Real Estate Practice at MP&S, attributed the difference in attitudes on the effect of Sandy on property values to time passing since the event. Executives were interviewed for the January survey between Nov. 16 and Jan. 4, when much of Lower Manhattan was still trying to recover from the flooding.
But he warned that will change quickly if there are more storms with substantial flooding in Lower Manhattan during this year’s hurricane season.
Jennings said he wasn’t surprised at the higher number of CRE executives who think the potential for flooding could push interest away from the downtown flood zones to other less flood-prone parts of Manhattan.
“The insurance companies are really the wild card in this whole thing,” he told Commercial Property Executive. “A lot of our financial statements were delayed while people were trying to get a handle on what the insurance companies were going to do. A lot of it is still up in the air. A lot of the claims haven’t been settled. They’re still pending.”
Then there are concerns over what will happen with rates once all claims are settled, he added.
“If the rates rise 20 percent, that could be devastating to a lot of these buildings and the domino effect it will have on commercial rents and property values. They’re holding their breath a little to see what is going to happen,” Jennings said.
Jennings said uncertainty about the upcoming mayor’s race in New York City could have contributed to the 43 percent response rate on the question dealing with government efforts to make significant changes to minimize flooding in the future.
In mid-June, a Building Resiliency Task Force led by the Urban Green Council and organized by Mayor Michael Bloomberg and City Council Speaker Christine Quinn said they city must take urgent steps to protect New Yorkers and its buildings from the next extreme weather events. The report made specific recommendations to improve resiliency and safety for four building types – commercial, multi-family residential, hospitals and homes.
The MP&S Gotham Commercial Real Estate Monitor report also asked respondents about overall commercial leasing prices, where they think office rents will increase in the city and which development projects could have the most impact on nearby commercial property values.
Only 15 percent of the property executives interviewed thought leasing prices were returning to post-recession levels now. Another 12 percent believed they will do so in 2014 and nearly a third – 32 percent –said it could take three or more years to see rents at 2007 levels.
“I think there are so many unknowns out there,” Jennings said, citing the still struggling economy, implementation of the new federal health care mandates, and rising income taxes as just a few of the issues that could be causing concerns.
Downtown Brooklyn garnered the most votes (17 percent) as the next area in New York City where office rents will skyrocket, followed by the Garment Center and Hell’s Kitchen, which each got 16 percent, the Financial District (13 percent) and Grand Central area with 10 percent.
About a quarter of the executives (34 percent) think the Hudson Yards project on the West Side of Manhattan is the major development project that will have the biggest positive, long-term impact of nearby property values.