economic overview and demand forecast - new york city

1

Hudson Yards Redevelopment

Economic Overview andDemand Forecast

Presented by:

Economics Research Associates and

Cushman & Wakefield

Spring 2003

A D V I S O R Y G R O U P2

Objective

To create a strategy to unlock the value of the Hudson Yards and help secure New York’s economic future

To create a vibrant new mixed-usecommercial and residential district

To create a realistic plan to fund the infrastructure improvements that will spur private investment in the area


Madison Sq GardenMTA Yards

Javits

24th Street

7th

Ave

10th

Ave

35th St

42nd Street

28th Street

8th

Ave

Hudson Yards Today

PA Terminal


The Challenge and Opportunity

Midtown and Downtown are steadily losing office space market share

Unless we take action now to expand available land for office development, Manhattan’s competitiveness may continue to erode

Hudson Yards is the largest area proximate to Midtown that can accommodate the commercial development necessary to capture New York’s share of projected regional growth

“Without taking action to create more space, New York City will miss out on hundreds of thousands of new jobs and increased economic activity in the next 20 years.”

-Group of 35, Preparing for the Future, 2001


Assets. . . . . .and Challenges

Proximity to Midtown

Access to the waterfront

Major public facilities

Developable land

Ability to connect to existingtransportationinfrastructure

Outdated zoning

Lack of transit access

Declining employment and tax assessments

Lack of public open space

Dominated by surface car, truck and bus parking

Javits Convention Center is not realizing its full potential


Demand Forecasts

Office

Residential

Hotel

Retail


Office Development

Expansion of prime Midtown Office core

Necessary to meet projected office demand

Highest incremental property value


Midtown Office Market

Comprises 294.5 million square feet, or 44% of NY region

Combined with Downtown, totals 387 msf, or 59% of NY region’s office inventory

Premier and largest office market in the nation

Manhattan’s primary location for Services and FIRE sector employment

Together with Downtown, Midtown is the NY region’s Economic Engine

Losing share of occupied office space within NY region


New York Region Occupied Office Space by MarketHistoric 1986 – 2001

Source: Cushman & Wakefield Analytics

0

100

200

300

400

500

600

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Mill

ion

s o

f sq

uar

e fe

et

Midtown Downtown New Jersey Long Island Fairfield/ Westchester

45.5%

22.7%

18.1%

23.9%

16.9%

45.1%

3.7%10.0% 4.3%

10.0%


New York Region Average Annual Net Absorption by MarketHistoric 1987 – 2000*


0.0 1.0 2.0 3.0 4.0 5.0

Fairfield/Westchester

Long Island

New Jersey

Manhattan

Net Absorption (millions of square feet)

Midtown Downtown

3.2 0.8

2.5

0.4

0.7

* Only through 2000 due to events of 9/11/2001 which adversely impacted both total inventory and occupied space.


New York RegionNet Absorption (1987 – 2000) versus Occupied Space 2000*



23.9%

45.1%

32.5%

41.8%

0% 10% 20% 30% 40% 50%

Long Island

Frfld/Wstchster

New Jersey

Downtown

Midtown

Occupied Space 2000 Net Absorption 1987 - 2000


New York RegionNet Absorption (1987 – 2000*) versus Projected Net Absorption (2005 – 2025)



35.2%

40.7%

32.5%

41.8%

0% 10% 20% 30% 40% 50%

Long Island

Frfld/Wstchster

New Jersey

Downtown

Midtown

1987 - 20002005 - 2025


0

5

10

15

20

25

50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01

Squar

e Fee

t (M

illio

ns)

1982-199061.1 MSF6.8 MSF Yr/Avg

ManhattanOffice Construction 1950 - 2001


1998-20018.3 MSF 2.1 MSF Yr/Avg

235.8 MSF or 4.5 MSF Annual Average


ManhattanSelection of Potential Development Sites


Midtown = 20+ msf

Site MSF

Con Edison 2.5

One Bryant Park 2.1

20 Times Square 1.3

Hotel Pennsylvania 1.1

Roosevelt Hotel 1.0

Downtown = 13-15 msf

Site MSF

World Trade Center 10.0

Site 26/BPC 1.8

55 Water St 0.8

15 William St 0.5


MidtownOffice Construction 1900 - 2002

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

1900

1906

1912

1918

1924

1930

1936

1942

1948

1954

1960

1966

1972

1978

1984

1990

1996

2002

Sq

uar

e F

eet

East Midtown

West Midtown

7th Ave, Broadway

3rd Ave

6th Ave

Park Ave5th Ave, Madison Ave,Rockefeller Center,

Garment District

Source:, Cushman & Wakefield Analytics


Source: Economy.com, NYC Planning, NYC Office of Management and Budget, Cushman & Wakefield Analytics

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

1990

1995

2000

2005

2010

2015

2020

2025

Off

ice-

usi

ng

Em

plo

yees

(000

s)

Historic Forecast

2005-2025 Regional Office-usingEmployment Growth = 443,450

New York Region Office-using Employment by Year1986 – 2025


New York Region Occupied Office Space per Office-using EmployeeHistoric 1986 – 2001

Sources: Economy.com, Cushman & Wakefield Analytics

0

50

100

150

200

250

300

350

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Sq

uar

e F

eet p

er E

mp

loye

e


New York Region Office-Using Employment and Office DemandProjected 2005 – 2025

Source: Economy.com, NYC Office of Management and Budget, NYC Planning, Cushman & Wakefield Analytics

ScenarioSquare Feet

Per EmployeeTotal Demand (Square Feet)

Low 200 88,690,000

Base 250 110,862,250

High 300 133,035,000

Total Change in Office-Using Employment = 443,450


New York RegionChange in Occupied Space by MarketProjected 2005 – 2025


Forecasted Net Absorption (MSF)

Capture Rate* Low Base High

Midtown 40.7% 36.1 45.1 54.1

Downtown 8.7% 7.7 9.6 11.6

New Jersey 35.2% 31.2 39.0 46.8

Fairfield/Westchester 9.2% 8.2 10.2 12.2

Long Island 6.2% 5.5 6.9 8.2

Total 100.0% 88.7 110.9 133.0

*Capture Rate based on recent trends


Midtown Office Market 2005 - 2025Demand Forecast Assumptions

Regional office-using employment growth of 443,450 results in demand for 89 msf, 111 msf or 133 msf

Midtown absorption represents 40.7% of regional demand

Even with declining market share, Midtown’s office demand will be 36 msf, 45 msf or 54 msf through 2025

Potential Midtown development sites are insufficient to meet future demand (current estimate of 20 msf)

Hudson Yards is forecast to capture 35% to 40% of Midtown’s demand based upon recent Class A development activity


Hudson Yards Capture Rate of Midtown’s Office DemandProjected Total 2005 – 2025


Forecasted Net Absorption (MSF)

CaptureRate

Low Base High

40% 14.4 18.0 21.7

35% 12.6 15.8 19.0


Residential


Residential Development

New York City is largest housing market in the nation– Manhattan comprises 727,000 occupied units

– Manhattan is one of the nation’s tightest housing markets with an estimated vacancy rate of 3.2%

Hudson Yards residential development– Natural extension of West Side residential neighborhoods

– Complements Office expansion

– Enhances 24 hour-7 day use


Source: Cushman & Wakefield Analytics, Housing and Vacancy Survey (1993, 1996, 1999)

0

200

400

600

800

1,000

1993 1996 1999

Th

ou

san

ds

of U

nit

s

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Renter Occupied Owner Occupied Rental Vacancy Rate

Manhattan Total Occupied UnitsRental Occupied Units vs. Vacancy Rate1993, 1996, 1999

708 704 727


Source: Cushman & Wakefield Analytics, Economy.com, Corcoran Group, NYC Planning

-10

-5

0

5

10

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

Th

ou

san

ds

Households

New Residential Units

ManhattanHousehold Growth vs. Residential Construction1987 – 2004

P r o j e c t e d


Source: Cushman & Wakefield Analytics, NYC Housing and Vacancy Survey

0

2

4

6

8

10

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Th

ou

san

ds

Estimated Units Vacant

Estimated New UnitsAbsorbed

ManhattanEstimated Absorption of New UnitsHistoric 1986 – 2001*

* Applied average vacancy rate of 3.2 percent to number of total new residential units.


Large-Scale Housing Development on the West Side

Battery Park City6,509 units completed between 1982 and 2001

Average of 361 units per year - roughly one building

An additional 2,931 units are planned

Trump’s Riverside South1,919 units completed between 1997 and 2001

Average of 384 units per year - roughly one building

An additional 3,781 units are planned


ManhattanTotal New Units vs Hudson Yards Share 1998-2001

Source: Cushman & Wakefield Analytics, NYC Planning

0

2

4

6

8

1998 1999 2000 2001

Th

ou

san

ds

of U

nit

s

Rest of Manhattan Hudson Yards

5,593

418

2,987

249

6,742

9215,712

596


Source: Cushman & Wakefield Analytics, NYC Planning

0 5 10 15 20

Hudson Yards

Rest ofManhattan

Units (Thousands)

ManhattanHudson Yards Share of Total Manhattan New Units1998-2001

89.6%

10.4%

21,034 Total Units


Projected new households total 40,480 or 2,024 annually

Replacement housing typically represents 0.5% of existing inventory (727,000 units), or 3,000 to 5,000 units annually

Annual new demand ranges from 5,024 to 7,024 units

Capture rate for Hudson Yards is based on recent strong absorption of 10.4%

Manhattan Residential Market 2005 - 2025Demand Forecast Assumptions


Hudson Yards Capture Rate of Manhattan’s Housing DemandProjected 2005 – 2025

Source: NYC Housing and Vacancy Survey, NYC Planning, Cushman & Wakefield Analytics

ScenarioTotal Annual

New Units

10.4%Share of

Units

Total * Annual

Square FeetTotal MSF

(2005-2025)

Low 5,024 522 522,000 10.4

Base 6,024 626 626,000 12.5

High 7,024 730 730,000 14.6

* Average unit equals 1,000 square feet


Hotel


Hotel Development

Important amenity to support commercial andconvention center activity

Provides for large convention type hotels proximate toJacob Javits Convention Center

Complements 24 hour-7day use of Hudson Yards


Hotel Market

Comprises 56,000 hotel rooms in Manhattan

Approximately 23,000 are convention style hotel rooms in Midtown

Midtown is the prime hotel location in Manhattan

New development in Hudson Yards will generate demand for hotels within the area


Hotel Room Demand

Capture rate of Javits room demand and corporate demand from within Hudson Yards remains constant - with roomnightsincreasing as demand generators grow

Capture of non-Javits group, leisure, and corporate demand from beyond Hudson Yards slowly increases over time

Hotel Room Demand and Segmentation

Year 2025Supportable

RoomsYear 2025

SegmentationHudson Yards Corporate 638 22%Other Midtown Corporate 643 22%Javits Convention Center 936 32%Non-Javits Group 257 9%Leisure 477 16%Total 2952 100%

Source: Economics Research Associates


Hotel Room DemandProjected Room Demand and Inventory2005-2025

-

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Room Demand Room Inventory



Retail


Retail Development

Retail is a key component to a vital urban neighborhood

Provides extended use and activity both during the day, at night and on weekends

Necessary to support Residential development, as well as Office and Hotel uses


Retail Market

Retail exists on the West Side along key corridors like West 34th and West 42nd Streets

New employees, residents and visitors will need convenient stores, restaurants and services


Hudson YardsSupportable Retail Square Feet

Supportable Square Feet by Demand Source

SupportableSquare Feet

Percent of Total

Office Workers 284,000 56%Local Residents 116,000 23%Hotel Guests 68,000 13%Inflow/Visitors 40,000 8%

508,000 100%



Hudson YardsSupportable Retail Square FeetProjected 2005-2025

0

100,000

200,000

300,000

400,000

500,000

600,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Cum

ulat

ive

Squ

are

Fee

t

Source: Economics Research ssociates


The Time Frame of the Market Forecast and the Revenue Projection

Real estate development is highly cyclical

Market forecasts reflect 20-year employment outlook

Potential financing approaches likely to require a longer-term revenue projection of 30 - 40 years

For this analysis, we have assumed continued demand growth at same pace from 2025 - 2035


Hudson Yards Base Case Scenario Development Forecast

Source: Cushman & Wakefield Analytics, Economic Research Associates

2005 - 2025Demand Forecast

Property Type MSF

Office 18.0

Residential 12.5

Hotel 1.0

Retail 0.5

2005 - 2035Financial Forecast Model

Property Type MSF

Office 28.0

Residential 12.5

Hotel 1.5

Retail 0.7

Housing and Hotel development reaches the planning target--and is “built out”--earlier than other uses


Hudson Yards Redevelopment area is the natural extension of Midtown

The only large land area in Midtown that is underutilized

Proven demand for office, housing, hotel and retail uses

Public policy initiatives are necessary now to enable the long term growth of this strategic Manhattan location

Hudson YardsDemand Forecast Summary“Without taking action to create more space, New York City will missout on hundreds of thousands of new jobs and increased economic activity in the next 20 years.”

-Group of 35, Preparing for the Future, 2001

economic overview and demand forecast - new york city

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