SOURCE: Marks Paneth LLP

Marks Paneth LLP

January 06, 2015 10:15 ET

More Real Estate Executives Think Manhattan Commercial Real Estate Is Overvalued; Conviction Grows That an Asset Bubble Is Forming

Foreign Investment Is a Valuation Driver; Nonetheless Professionals Say Office Rents Will Rise, According to Marks Paneth Survey of NY Commercial Real Estate Executives

NEW YORK, NY--(Marketwired - Jan 6, 2015) -  Is Manhattan commercial real estate overvalued? Professionals are increasingly concerned that it is, and more of them are convinced that an asset bubble may be forming.

Nearly one out of five (19 percent) think properties are "highly overvalued," and 55 percent think they're "moderately overvalued," according to a quarterly survey of 124 top-level New York real estate executives, including owners, brokers, agents, engineers, accountants and lawyers specializing in the commercial space.

The 55 percent "moderately overvalued" result represents a 13-point increase from the summer survey.

Those are among the results of the Fall 2014 Gotham Commercial Real Estate Monitor survey by accounting firm Marks Paneth.

"The uptick in those who believe that properties are at least moderately overvalued shows that sentiment is solidifying -- concern isn't yet extreme, but there's a growing sense that Manhattan commercial valuations may be out of line," said William H. Jennings, Partner-in-Charge of the Real Estate Group at Marks Paneth.

Other findings from the survey reflect similar concerns. Fewer professionals say that valuations are accurate. In the response to another question, there's been a nine-point decrease (to 21 percent) in the number of executives who say Manhattan commercial properties are "fairly valued."

Most professionals believe that foreign investment is a major driver of high valuations, with a solid majority (61 percent) convinced that foreign investment has "a great deal of influence."

Professionals Think a Commercial Asset Bubble is Developing

Is an asset bubble forming in New York commercial real estate? Sentiment is growing that the answer is "yes." Thirty-seven percent think low interest rates have created a bubble, similar to the housing bubble of 2005-2007. That figure is unchanged from the June survey but higher than April's (31%). Twenty-nine percent disagreed in the recent survey that a bubble is developing.

In addition, 29% think that low interest rates might be creating the asset bubble. That figure is up 4 points from the summer survey.

Despite the Overvaluation Sentiment, Office Rents Will Climb, Executives Say

Despite their concerns about too-high valuations, executives expect that commercial rental income will continue to flow. In the wake of reports that Manhattan Class A office space rents rose 8.2% from last year's third quarter, nearly three-quarters (74%) think rents will continue to rise; one in five (21%) think rents will stay the same.

Those who expect rising rents think the average increase will be 4.4% through the fourth quarter.

To receive a copy of the Fall 2014 Marks Paneth Gotham Real Estate Monitor and/or to speak with a leader from Marks Paneth's Real Estate Group, please contact Katarina Wenk-Bodenmiller of Sommerfield Communications, Inc. at Katarina@sommerfield.com or 212-255-8386.

Methodology
The Gotham Commercial Real Estate Monitor from Marks Paneth represents the findings of a survey of commercial real estate professionals in the New York City market. The 124 professionals participating in the research include owners and managers of commercial property, commercial real estate brokers and agents, and attorneys and accountants and other professionals specializing in the sector. The research employed self-administered questionnaires completed online and on paper by respondents. The list of professionals surveyed was compiled by Marks Paneth LLP, the research sponsor, and by Michaels Opinion Research. Interviews were completed during the period of November 6 to December 1, 2014.

About Marks Paneth
Marks Paneth LLP is an accounting firm with over 500 people, of whom 65 are partners and principals. The firm provides public and private businesses with a full range of auditing, accounting, tax, consulting, bankruptcy and restructuring services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services, and energy clients. The firm has a strong track record supporting emerging growth companies, entrepreneurs, business owners and investors as they navigate the business life cycle.

The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in Morison International, a leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world. Marks Paneth, whose origins date back to 1907, is the 33rd largest accounting firm in the nation and the 10th largest in the mid-Atlantic region. In addition, readers of the New York Law Journal rank Marks Paneth as one of the area's top three forensic accounting firms for the fifth year in a row.

Its headquarters are in Manhattan. Additional offices are in Washington, DC, Westchester, Long Island and the Cayman Islands. For more information, please visit www.markspaneth.com.

Contact Information