The real estate market seems to be rebounding nationwide, and even Manhattan's skyline is back on the block, with prices hitting almost giddy pre-crash heights. Indeed, several skyscrapers — or portions of them — have recently sold for upwards of $1 billion.
In 2007, before the housing bubble burst, New York had $35 billion in office sales — and 10 individual deals each topped $1 billion. Between 2008 and 2012, that number dropped to one: Google's Manhattan headquarters, which sold in 2010 for $1.9 billion.
This year, the big deals are back. Already in 2013, the city has seen three real estate deals for over $1 billion: The Sony Building on Madison Avenue, the GM building overlooking Central Park, and the tower at 650 Madison Avenue. Some of those deals topped price-per-square-foot records set during the boom years.
But rental rates — traditionally a key factor in office space deals — are still 20 percent off peak levels, as employers wait to expand their businesses. And office vacancy — 9.1 percent in the first quarter — still lingers well above pre-crash numbers in most New York City neighborhoods.
So what's the deal with these huge office space deals?
For starters, low interest rates, artificially dragged down by the Fed, make for cheap borrowing. That's one of the same factors boosting the rest of the real estate market. But low rates also make investments on low-interest bonds rather sluggish and unappealing. So rather than park their money in a languid bond market, investors are purchasing these "trophy towers" and using them to generate a modest income from rents — not much, but still a higher return than low-interest bonds, says the Wall Street Journal.
Will it last? Probably not, especially as interest rates start creeping up:
Market participants say they are aware the party won't last forever. The rise in interest rates in recent weeks has made financing more expensive and bonds more attractive. Fears that the low-rate environment may end has helped persuade some owners to put their properties on the block now. [Wall Street Journal]
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