Word of Mouth

I recommend Greg David’s blog piece issued yesterday on New York City’s economy citing Eastern Consolidated’s recent Employment Alert. It is always good to review New York City’s statistics to understand how the city is doing. Our soon-to-be-issued Manhattan Economic Indicators carefully analyzes the fourth quarter data and provides commentary on what the statistics mean for the coming year.

I also recommend the New York Times recent article on how the International Monetary Fund is trimming its estimates for global growth. It covers a lot of bases on the state of the global economy.

The I.M.F. cut its growth forecasts for almost every region in the world. For Europe, the I.M.F. expects the region to contract by 0.1% instead of its earlier forecast of 1.4% growth, issued in September.

Its forecast for the United States did not change, but it did warn that American banks face exposure to the European debt crisis.

Much of the talk these days is about Europe and the current negotiations between Greece, its private lenders and the European Central Bank. Why does this news matter here in New York?

First, so little is moving in the market because of the uncertainty that a lack of resolution to this Greek debt has generated. The Greek government is due to pay 14.4 billion euros to bond holders in March, or it will default. Officials are trying to get the banks to agree to a 50% “haircut.” The ultimate agreement will have a significant impact on the banks and the ECB whether they agree to the cut or not. The impact from a default would be significant and right now the market believes that banks will agree to the 50% discount. But this effective write-down will hurt banks’ capital just as the last Basel III agreement is requiring banks to increase capital ratios. How this all will be resolved in the next two months is still anyone’s guess.

This is why Wall Street is quiet, why the office leasing market has stalled, why fewer large office buildings have traded and why financial service companies are shedding jobs: because the outlook in Europe is still so unclear.

It’s important to stay informed on this and many other economic-related topics as much beyond our five boroughs affects New York City’s economy.

What happened last quarter? Did everyone start their holiday in mid November? The volume of commercial property sales fell by more than 40% in the fourth quarter to $6.1 billion from $10.7 billion in the third quarter.

Nearly every property type outside of hospitality saw a decline, but the slowdown was most pronounced in multifamily and office property sales, both of which registered half the volume that was traded in the third quarter.

The lackluster fourth quarter results were indeed a casualty of the broader uncertainty from the European debt crisis that had escalated at the end of last summer. Combined with other tepid economic conditions in the U.S. economy, the lack of resolution in Europe put off investors for the short term.

The decline was primarily due to a lack of large transactions, the statistics clearly show that the small and mid-size deals are still trading. Moreover, little seems to suggest that this segment of the market will suffer in the near-term. Statistics on the U.S. economy are starting to improve (see future blogs), and New York City’s real estate market is still considered one of the safest investments in the world. Those who fear Europe may in fact shift their focus away from the continent and towards the U.S.

As per President, Daun Paris, “Our investors are still eager to buy in the current market despite the bad news from Europe –and maybe because of the conditions in Europe they are even more interested in buying in New York City. Still, we’re just not seeing as many large transactions as we had six months ago.”