Commercial Property Development in the Central Manhattan Area - Essay Example

Introduction The issue of commercial property has been in the economic circles for a long time. With the growing global population, business expansions, and need for higher living standards in the world, the demand for commercial properties has been rising at a significant rate. Commercial properties form and rely on macro and microeconomics. The U.S and specifically Manhattan are one of the places in the world where commercial properties are very dominant (Wheaton, W. C et al. 2009, p. 69-73). The commercial property development in central Manhattan area deals with properties like land, multifamily apartments, class A and B multi-tenanted office buildings, industrial property, retail spaces, real estates among other properties. This paper addresses the main drivers for commercial property development in central Manhattan area over the last six years. This adopts special reference to the fundamental economy of the USA, as well as the Times Square in Manhattan, which reflects the role of IBIDS in commercial property development. Commercial property in the USA suffered adverse effects from the global economic challenges. Indeed, the stalled economic recovery from the global recession destabilized the USA’s commercial real estate (CRE) recovery (O’Brien, B., Sheth, S., & Mahajan, S 2013, p.1). This has been because of economic stagnation in Europe, huge foreign debts, problems in the world labor force, the global economic recession that started in 2012, the correlation between USA and Eurozone economic growth, globalization, demeaning liquidity trap, lack of business innovation, and slow growth in emerging economies like China and India. Nevertheless, there are probable measures that reinforced the commercial properties industry in the US especially in Manhattan. Question 1: Main drivers for commercial property development demand Demand and supply are important factors in all markets. In Manhattan, the demand for commercial property has steadily increased over the past few years. Therefore, new commercial property development in Manhattan has aimed to meet the demand in the market. According to O’Brien, Sheth, & Mahajan (2013), the use of social media, enhancing innovation, cloud computing, and adopting enterprise mobility in the commercial property development in Manhattan helps to ensure effective business development, which contributes to the increase in demand. Nonetheless, the demand for commercial property in Manhattan is primarily from companies and businesses, which are in need of office spaces. Therefore, the commercial property development in Manhattan has ensured the creation of new property to satisfy the demand in the market. One of the factors that have enhanced the demand levels of commercial property in Manhattan is the expected price increase for commercial property shortly, because of economic hardships in the USA. Many companies, therefore, want to ensure that they acquire commercial property, and fulfill their need for office spaces before the price of commercial property increases. Most importantly, the financial condition of a company is a major determinant of whether it will acquire new commercial property or not. Therefore, this is another factor, which influences the demand for office space in the market. However, the financial condition of a company depends on the national economy, among other factors such as interest rates and mortgage. Nonetheless, the aspect of demand is the core driver for commercial property development. Employment, employment structure, metropolitan effect, and investment are other main factors that influence demand, therefore, are addressed as drivers for commercial property development. Employment The economy of a country is highly influenced by its rate of employment. This, therefore, is also important in commercial property development, as it influences the demand in the market. Basically, if the employment rate is high, the commercial property development industry will experience a boom due to the high demand level. In Manhattan, the commercial property development industry has been influenced by the overall economy of the country, as well as the rate of employment. Before the financial crisis of 2007, the employment rate improved each year, thus reducing the vacancy rate. On the other hand, during the financial crisis period, the employment rate in the USA dropped, thus increasing the vacancy rate in the commercial property development industry. After the financial crisis, beginning 2010, the vacancy rate in the commercial property development industry has steadily dropped, as the employment rates in the country increase steadily. Therefore, when employment rates increase, companies acquire more employees, leading to a demand for more office space. Nonetheless, in future, if the employment rates in the USA continue to increase, the demand for office space will consequently increase, leading to a boom in the commercial property development industry. Employment Structure Change Overall, the USA has experienced employment structure changes, and these have continued today. Although more people in the USA today are employed in tertiary industries, people are prone to change their work, as well as companies they work for. Additionally, companies might undergo considerable changes. In the New York City, like most parts of the world, there is high demand for services such as education, tourism, and health care. Therefore, when some manufacturing industries relocate to different continents, education, professional service, health care, and tourism have remained stable in New York City. The commercial property development industry might be compared to the professional services sector, except for its low expansion capability. Nonetheless, during the recession period, different industries were affected negatively. When a company experiences losses, it might have to lay off a significant number of its employees in order to cut down on costs. This, therefore, means less office space, and increase in the vacancy rate in commercial property development. On the other hand, bloom in the economy results in positive employment structure changes, including the need for more employees, thus more office space needed, and this decreases the vacancy rate. For example, Microsoft rented a large building in Manhattan near the Times Square. This was to cater for its increased number of employees today, compared to the past years, when it was still in a simplistic stage. Metropolitan Economy Effect The metropolitan economy of Manhattan has largely contributed to the growth of the Manhattan commercial property development. The commercial property development in the central Manhattan area is at a developed stage, and therefore, attracting many investors. The investors reckon that commercial property in Manhattan is highly overvalued while others appreciate that the overvaluation is moderate and justified (Jennings, W. H 2013, p.1). On the other hand, the space for commercial property development in central Manhattan area is nearly over, and the investors are now establishing the commercial properties on the air. Indeed, in New York, the price of air is very expensive subject to the fact that the demand for available air is equally very high (Finn, R 2013, p.1). Metropolitan economy encompasses the economics of a large city, including the industries, markets, infrastructure, and housing, among other economic aspects of the city. New York City is a large city is one of the financial capitals of the world, and top among the wealthiest counties in the USA, and is among the densely populated cities in the world. There are varieties of industries of diverse nature in the New York City, which form the economy of the City. Nonetheless, the high economic advancement of New York City is responsible for its increased growth. This continues to attract more industries and investors, as the business in the city is booming. The metropolitan economy continues to attract more people and companies in Manhattan. For instance, some of the world’s top companies have opened branches in Manhattan. Google purchased a large office space in Manhattan for its largest engineering center, which is the Centre for advertising operations in North America. Other top companies established in Manhattan include Apple, and Microsoft, Microsoft who have made 11 Times Square their Head office. With the diversity of the companies in New York City, and being a world-class city, more companies from different parts of the world are willing to relocate to New York. This, therefore, opens up more opportunities for Manhattan. As such, the commercial property development in Manhattan continues to grow, as more companies set their branches in the area, thus increasing the demand for office space. Overall, the metropolitan effect of the area has a positive influence on the commercial property development in the area, as it has ensured its growth. Investment The economy of a country is a core determinant of investments in the country. Therefore, in the commercial property development, investment also depends on the economy of a country and factors such as interest rates and mortgage. Nonetheless, investment influences the growth of commercial property development. Increased investment in commercial property development enhances the growth of the industry. In Manhattan, the overall sales of commercial property in the market have slowed down since the period of the financial crisis. In 2007, the industry experienced a boom but slowed down until 2010 when the industry started to pick up gradually. Nonetheless, the commercial property development has to determine its supply by analyzing the investment trend over the years. Question 2: BIDS Another significant factor for the commercial property development in central Manhattan is the presence and influence of the Business Improvement Districts (BIDS). What is a BID? A BID refers to a formal arrangement of property owners and commercial investors who seek to promote the business development of a place and to enhance better living standards in the area (NYC BID Association n.y, p. 1). What a BID does? A BIDS promotes business development in a given district and promotes the living standards of the residents in such districts. This is through providing services such as community service, public safety, capital improvements, and beautification and landscaping, among others. How BIDS changed Manhattan Manhattan harbors the largest effective network of Business Improvement Districts in the US. The current 22 BIDS in Manhattan have been significant in revitalizing the neighborhoods and enhancing economic development in Manhattan by investing heavily in programs and services that foster commercial property development in Manhattan (NYC Small Business Services n.y, p. 1). The Business Improvement Districts in Manhattan fall under the efficient control of the NYC Department of Small Business Services. The NYC BID Association, which comprises of leaders of NYC's Business Improvement Districts, fosters commercial property development. The BIDS provide services to about 70,000 businesses and invest approximately $11.25 million for the Downtown Alliance in Manhattan (NYC BID Association n.y, p. 1). In Manhattan, the BIDS promote best commercial property development practices by enhancing better sanitation and maintenance, beautifying the environment, marketing, and promoting the commercial properties, and guaranteeing public safety and visitor services within the central district (NYC Small Business Services n.y, p. 1). Nevertheless, it is clear that BIDS derive a positive impact on the value of commercial property in central Manhattan. These have led to significant increase in prices of commercial property within the BID’s boundaries (Ellen, I.G., & Schwartz, A. E 2007, p.28). The increase in the value of the commercial property because of the BIDs, manifest the effectiveness of the BIDs in improving the quality of local amenities in Manhattan. However, the positive impact emanates solely from the large-office BIDs. More so, there are instances where the positive impacts generated by the BIDs in Manhattan have led to increased demand for commercial property and subsequent conversion of residential property to commercial property development (Ellen, I.G., & Schwartz, A. E 2007, p. 28). The Times Square is one of the major developments in central Manhattan that manifest the transformations, which have been brought about by the BIDS. Today, Times Square is one of the iconic buildings in New York City, which sits in the center of Manhattan and is a commercial property that harbors many businesses, hotels, and offices. Investors refer to it as the ‘crossroads of the world.’ In the past years, the Times Square was an insecure place in the night, a red light district, which harbored prostitution. However, today, this ranks among the largest squares in the world, which generates great economic output. The BIDS in Manhattan, therefore, played a significant role in bringing about this transformation of the Times Square. The responsible association, which is the Times Square Alliance, co-ordinated various activities in the square to ensure it gains its present standard. The Times Square Alliance was founded in 1992, and it is responsible for security and sanitation of the Times Square and its environs. This provides the neighborhoods of Times Square with different services, which the Alliance’s Public Safety Officers and Sanitation Associates offer. Also, this the Alliance supports local business and economic development, and public improvements. This also coordinates various events in the Times Square during the year and at the end of the year (Times Square n.d). The Times Square Alliance coordinated various activities in order to reinvent Times Square from a red light district to a major development in Manhattan. The Alliance first solved the sanitation and safety issues in the Times Square before embarking on its beautification and renovation. Other major activities on the Times Square include the opening up of entertainment, culture, and tourism spots in the square. The major effects this had on the Times Square is the rise in tourism, a decrease in crime, and increase in office and residential values. In the recent times before the improvement of the Times Square, there was a rampant crime in the city, which included prostitution, drug addiction, drug peddling, and robberies (Finn 2013). However, the BIDS eliminated the crime and guaranteed safety in Manhattan thus improving the living standards in this area. As a result, there are many tourists in the Times Square neighborhood, and this has been increasing in the recent times (Satow 2013). Consequently, the Times Square has become a source of employment for a part of the New York residents. Additionally, this has attracted Microsoft, which has set their head office here (Trainor 2012). Apart from improving the Times Square, the Times Square Alliance influence the lives in the neighborhoods, as this offers a variety of services to ensure safety, and sanitation, among others, which the neighborhood lacked in the past. Nonetheless, BIDS such as the Times Square Alliance add value to commercial properties, by reinventing them and improving the livelihoods of people in the area. BIDS in central Manhattan have added value to commercial properties in the area. Over the past years, there has been an increase in the price of commercial properties in this area. Similarly, advertising in the Times Square today is considerably costly. In 1997, the advertising space in the Times Square was at $110 million. Additionally, this takes in more than $23 million a year from signage alone. Moreover, subject to the BIDS in Manhattan, there have been increased redevelopment projects, and rent rates are equally very high in central Manhattan, thus boosting the economic level of the area. Today, commercial properties in Manhattan, such as Times Square have become attractive to most investors (Finn, R 2013, p. 1). More so, the cultural, political, and economic factors in Manhattan have also played a role in revitalizing the commercial property development in the city (Reichl, A. J n.y, p. 1). However, the BIDS have had a major positive impact on the commercial property development in central Manhattan. The BIDS in Manhattan operate under specific the legal principles in the New York City (Lent 2013). Nonetheless, legal principles applied in Manhattan mandates the commercial property owners to promote public interest in developing such properties (NYC Department of Housing Prevention and Development’ 2013). Despite the fact that Manhattan is the smallest borough in the New York City, it has the greatest population and harbors the tallest buildings and largest commercial properties in the New York City. This makes it a viable place for investment in commercial property development. The iconic buildings in Manhattan include the Times Square, the Central Park, among others, and these enhance the image of Manhattan (Global Holdings, 2013). The streets and avenues of Manhattan are a magnificent aspect of central Manhattan. Notably, Manhattan has well light and beautiful streets and avenues. Moreover, the space between the avenues is larger than the space between the streets thus facilitating movement and reducing congestion. Furthermore, there are music halls, hotels, and lounges along the (Trainor 2012). This has been achieved through the serious projects of BIDS in Manhattan. Therefore, BIDS in Manhattan are equally important in the development of the area, through their influence on the commercial property development in the area. Most assuredly, the value of the commercial property in Manhattan has been growing rapidly to become the highest rated investment in New York. For instance, the average asking rent rate in Manhattan is $2,100 per square foot. Also, the number of commercial properties for lease in Manhattan as well as commercial properties for sale is considerably high. Most importantly, there is improved security in Manhattan, and improved living standards of people, in addition to the increased value of commercial properties in the area. Apart from the Times Square Alliance, there are more IBIDS in Manhattan, which continue to have a significant positive impact on the commercial property development sector in Manhattan, and thus contributing to the shaping and growth of the commercial properties development sector of Manhattan and the overall area. Although there has been little formal evaluation or examination on the effectiveness of the BIDS in commercial property development in Manhattan, it is quite clear that these have played an effective role in commercial properties and development in Manhattan. Conclusion The commercial property development is a growing trend in the global market and most specifically in the US. There is increased demand for commercial properties in the world, and specifically, Manhattan is one of the places in the world where commercial properties continue to dominate the market. Notably, commercial properties form and depend on macro and microeconomics. This paper explored the major drivers of commercial property development in Manhattan. These were identified as employment, employment structure, investment, and the metropolitan economy effect. However, demand is core to commercial properties development, as it influences the supply. These factors have been addressed with reference to the fundamental economy of the USA, including 2007 to 2009 financial crisis, which destabilized the economy. This paper has also explored the role of BIDS in commercial property development in Manhattan. BIDS are identified as important players in the development of a commercial district. The influence of BIDS in Manhattan has been discussed with close reference to the Times Square and the Times Square Alliance, which is responsible for the improvement of Times Square and its environs. Nonetheless, BIDS are regarded as important bodies in Manhattan and the larger New York, as these provide effective basic services, which improve the city and its commercial property development. Using the performance criteria provided, I can rate my work at above 70 % since I effectively discussed commercial property development in central Manhattan. I have discussed the drivers of commercial property development in Manhattan and linked them to the fundamental economy. More so, I was able to evaluate the significance of the Business Improvement Districts in commercial property in central Manhattan, with reference to the Times Square. I, therefore, consider my performance to comply with the project description, through the manifested detailed evaluation of concepts and critical thinking. 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