The top 5 reasons why now is the perfect time to invest in the NYC office market

Unprecedented times lead to unprecedented opportunities

1. Core gateway office markets, specifically NYC provide value protection and offer the most liquidity in all economic environments

In the global financial crisis, the core CBD markets not only recovered to peak pricing in nearly half the time of their office market peers, but gateway office pricing was more insulated, declining by 27.8% versus 43.1% for office on average.

Research by Newmark Knight Frank show that core gateway markets offer the most liquidity in all economic environments and provide substantial value protection in recessionary periods.

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2. Fast recovery, low unemployment and out-performance

The NYC office market has outperformed every other gateway market over the long-term.

In the last recession, NYC employment dropped by 2.4 % (2nd lowest ). The US declined by 6.3%.

NYC has historically outperformed the US office market by 10%. It has also outperformed San Francisco and Austin by 3.5%.

3. Limited new supply and oldest stock of buildings of any gateway city

NYC has less supply coming online than its gateway peers and 64% of that supply has already been leased. In addition 72% of office buildings have not been sold in the last 50 years.

Given its dense and developed real estate infrastructure, substantial equity capital requirements, and extensive project approval processes, NYC is structurally characterized by high barriers to entry which limit the delivery of competitive new supply.   Additionally, office ownership in NYC is highly fragmented with the majority of assets are controlled by multi-generational owners who don't sell, primarily local families or individuals who lack the capital and market expertise to manage and/or reposition assets to an institutional standard. In the last 2 market dislocations there were only a handful of office building sales because the view is NYC office always comes back .

4. NYC is the knowledge capital of the world

NYC was voted one of the top two gateway centers best positioned for office investment growth. It is based in part on a strong correlation between robust working age (25-45), population growth and income growth to office rent growth.    NYC (Midtown) was recently ranked #2 in the ULI Top Global City Ranking Report as North America continues to lead the way with the ability to attract talent in a Post Covid world .  This ability to attract and retain talent was overwhelmingly the most important criteria. NYC has the highest educated workforce in the US and 72% of millennial office workers live within a 5 mile radius of Manhattan.

NYC now has a diverse private sector employment base and one of the deepest, most diverse talent pools in the world. The city now has a strong financial, media, technology and rapidly growing life science sector and is home to 65 Fortune 500 companies and over the last 24 months have been several large employment expansions: Google, JP Morgan, Amazon, Disney and several other firms have announced plans to expand and spend significant capital expenditure in NYC.    In addition, there are still several non household named companies in NYC that are currently hiring hundreds of workers including Lemonade which had the best IPO in debut in 2020 and  5 NYC Tech Companies that Raised $537M Combined in June . Recently TikTok selected NYC for their US HQ. This  eases concerns that tech companies will not lease nearly as much office space as they did before the pandemic

5. Opportunity to enter the high barrier office market at a good basis

As Warren Buffett says, "Be fearful when others are greedy. Be greedy when others are fearful." While use of the word ‘greedy’ during a pandemic may be a bit strong, the broader point is that (like the virus) panic and fear can be contagious.   Immediately following the last 2 market disruptions were the best vintage years for office funds as NYC is characterized by value appreciation instead of yield.   While New York is certainly being impacted, the city has been through periods of extreme uncertainty as recently as 9/11 and the Global Financial Crisis (GFC) and has always recovered and added additional jobs.

In conclusion, we don’t pretend to know what the next few months or even years will look like, but we have high confidence that New York will fully recover and continue the trend of 10 years of sustainable diverse job growth. The work from home experience has proven serviceable at best. As many jobs that maybe lost to the work at home experiment will be more than offset by new job growth and higher square footage per employee.

WANT TO LEARN MORE? Call KPG Funds today at 212-359-0743 or visit KPGFunds.com LEARN MORE

KPG Funds (“KPG”) is a fully integrated real estate private equity platform with Asset Management, Project Management, Development, Design, Leasing and Property Management. With over 35 years combined experience based in NYC, KPG manages fully discretionary institutional vehicles targeting middle market value-add office investments. KPG is a privately held and management-owned investment firm filed with the SEC as an exempt reporting adviser, and that maintains an unwavering commitment to put its investors needs first. Additional information about KPG and a selection of current holdings and previous transactions are available at kpgfunds.com or by calling 212-359-0743

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