What Trends Are Driving New York City’s Commercial Real Estate Market?

Today, I invite you to a conversation with New York City commercial real estate expert Kara Luwisch, a key member of Berkshire Hathaway HomeServices New York Properties’ Hirsch Commercial Team. With a specialization in commercial leasing, Kara represents both tenants and landlords across the five boroughs. She services all price points and no client request is too big or small for her to handle. Join me in learning more about commercial leasing with an insider’s perspective on the trends that are driving commercial real estate.

ELLIE JOHNSON: Kara, thanks for joining us today. Can you tell us some of the main differences between commercial and residential real estate leasing?

KARA LUWISCH: Thank you for inviting me to discuss this topic! Commercial real estate is different from residential in several different ways. The major distinction is that you are dealing with a variety of asset types: office, retail, industrial, multifamily and land. Each asset type comes with its own set of requirements and challenges. Keeping watch on local, national and global market trends such as net absorption, land and construction costs, interest rate volatility and the designation of new Opportunity Zones are critical for understanding how to navigate through those challenges and identify opportunities

The negotiation process for commercial properties is often very complex, especially for long-term leases, which could last for 5-10 years or longer. Beyond rental rates, there are many additional terms that each party needs to carefully consider. Unlike residential, parameters such as budgetary limits, space configuration and physical location need to align with the interests of the entire company. There could be many different parties involved in the decision-making process for commercial transactions, whereas residential is usually between two parties or representatives.

Additionally, the various elements that prospective tenants look for differs – we see office tenants that want renovated lobbies, collaborative tenant amenities or spaces that accommodate certain work cultures and future growth needs.

EJ: Interesting! Let’s shift now to what makes New York City commercial real estate different. At the moment, what trends are you seeing that are driving the office market in New York City?

KL: New York City is a financial hub. People want to be here, which is great for companies to access talent. With the rise of co-working spaces, many start-ups and smaller companies now have the option to establish and maintain operations in New York.

For example, a small European-based start-up will be able to enter the New York market on a short-term capacity and grow at their own pace. That is the beauty of co-working spaces; they allow these types of companies the flexibility and freedom to test the market without needing to commit to long-term leases.

Another trend worth noting – landlords are listening to the market and adapting the aesthetics and amenities of their properties to accommodate tenants’ current demands and expectations. This includes exposed ceilings, brick walls, concrete floors, comfortable lounge areas and outdoor spaces.

EJ: How about New York City retail? What are some of the key factors driving that market today?

KL: We are seeing a wider variety of usages and landlords have become more open-minded to new and modern concepts. For example, boutique fitness studios, e-commerce storefronts, specialty candy and bakery shops and food-related marketplaces have all established a solid following amongst the people of New York City.

Location is always a key factor when it comes to rents and this is even more true when it comes to retail, since many of these brick-and-mortar stores rely on foot traffic. Pop- up shops in New York City continue to be on trend as they are a cost efficient and flexible way for new businesses to test their concepts.

EJ: What are some of the challenges or roadblocks that commercial real estate professionals are facing today?

KL: Just as you see in the residential industry, we are operating in an extremely competitive market. There are many professionals specializing in the same services, giving the consumer multiple options from which to choose. This challenge makes it even more imperative to provide new perspectives and creative approaches to a deal.

Technology has also increased the competitiveness in the business, while helping streamline some of the process. It has created a level of transparency within our industry, versus what we had just a few short years ago. At the end of the day, real estate is still a business that relies heavily on interpersonal relationships. When you are trying to find a space or negotiate a deal, there are so many elements that come into play. The best commercial real estate agents and brokers become a sounding board for their clients; they are constantly adding value throughout the deal and act as their advisors and advocates.

My advice to new professionals is that networking is paramount to setting up a foundation for success. Don’t be afraid to get out there, ask questions and learn as much as you can about the various elements that make up commercial real estate.

Many commercial real estate professionals try to find a niche early on in their career. However, there is tremendous opportunity and value if you can remain open to all sectors and work with different business types and sizes throughout the five boroughs, or any of the regions where you operate.

EJ: Thank you again for your time today, Kara. One last question – which neighborhoods in New York City do you think are on the rise?

KL: Thank you for this opportunity to share my professional insight with you and our readers. In response to your last question, from an office perspective, Midtown Manhattan will always be in demand. We continue to work with financial, technology and institutional firms that need to have a presence there, as it provides great opportunities for client growth. However, I have noticed financial services firms that would have only considered Midtown five years ago, are now open and excited to trying something different – perhaps a loft space in Flatiron or Chelsea. And, let’s not forget the impact that Hudson Yards has had in the expansion of available office, retail and residential amenities.

If you look to Brooklyn, I think Opportunity Zones such as Greenpoint and Brooklyn Navy Yard are gaining more traction as the neighborhoods are transforming with new development and capital investments.