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Take-Aways from the IBO’s Latest Forecast for NYC

1) What should we know about today's macro environment?

  • We’re in the advanced stages of a recovery. The US is entering the 79th consecutive month of expansion—well beyond the typical period of recovery for post-war America.
  • Employment growth in NYC has eclipsed that for the US as a whole. NYC has added an average of 95,000 jobs in the last six years.
  • NYC wage growth will be constrained given the reduced importance of the financial industry. The sector is responsible for ¼ of the city’s wage growth, down from ½ in 2004-2008. Rising interest rates may hamper Wall Street growth, particularly if net interest expense rises with higher interest rates. Lower wage growth also translates into lower corporate tax flows into the city’s coffers.
  • A strong dollar will hurt NYC’s tourism and business travel revenue. Weaker leisure and hospitality growth will be a negative consequence.

 

2) The IBO’s Forecasts for NYC Rents and Payrolls

  • Employment growth slowing every year between now and 2019 (the forecast horizon)
  • An increase in jobs in 2019 that is almost 2/3 less than job gains in 2014
  • Manhattan office rents rising by 2.1% per annum through 2019 (though the OMB sees growth at a slower 1.2%)
  • “The city’s real estate market has recovered strongly since the 2008 crash, though as measured by the inflation-adjusted value of taxable sales it is still well off of its 2007 peak. Growth has been fueled by the overall strength of the city’s economic expansion, very low interest rates, and the city’s enormous appeal to foreign investors seeking a safe haven from political and economic turmoil. The first two factors will not be as powerful going forward, and IBO expects the real estate market to be less super-charged during the forecast period than it has been in recent years.”

 

3) The IBO’s Forecasts for NYC Assessments and Property Taxes

 

  • The tentative assessment roll for 2017 is scheduled for release in January 2016. After a period for appeals and review, a final roll will be released in May. IBO projects that aggregate market value on the final roll will be 5.4 percent greater than on last year’s roll, while assessed value for tax purposes is forecast to grow by 5.8 percent.
  • IBO projects that on the final roll for 2017, aggregate market value for all properties in Class 2 will total $248.8 billion, a 6.1 percent increase over 2016. Class 4 aggregate market value is expected to reach $278.7 billion, a 6.4 percent increase over 2016, which would be the sixth consecutive year of annual growth greater than 5.0 percent.
  • Aggregate assessed value for tax purposes for Class 2 is expected to be $70.9 billion, a 4.4 percent increase from the 2016 roll, and $103.2 billion for Class 4, a 7.4 percent change from the previous year.
  • The increase projected for Class 2 is below the average for growth in market value over the past five years (6.0 percent), while the increase forecast for Class 4 is above its five-year average of 6.3 percent. The continued growth in Class 2 and Class 4 assessments for tax purposes is partly attributable to the city’s method for translating changes in market value into assessed value. In most cases changes in parcels’ market values are phased in equal installments over five years. The remaining assessed value changes from the preceding four years that have yet to be recognized on the tax roll are called the pipeline. IBO’s assessed value projections reflect an improving market over recent years that has allowed the pipeline to increase threefold from $6.3 billion in 2011 to $17.9 billion in 2016. The pipeline’s current level eclipses the previous high set last year of $17.1 billion.
  • The IBO believes that real estate sales— in particular commercial sales—will slow in the latter half of 2016, in part as a response to impending higher interest rates. In 2015, the growth in real property transfer tax (RPTT) revenue in 2015 was due almost entirely to the increase in the aggregate value of commercial sales, 19.3 percent, while residential sales experienced growth of just 1.4 percent. RPTT revenues increased 15.6 percent in 2015 compared with 2014, and set a new record of $1.8 billion. There were 130 transactions valued at over $100 million during the fiscal year, compared with 101 such transactions the previous year. The 2015 high-value transactions included an apartment sold for just over $100 million at One57 (157 West 57th Street)—up to now, the most expensive residential sale ever recorded in New York City. There were four sales of commercial properties valued over $1 billion in 2015 compared with five such sales in 2014. The highest-value sale in 2015 was that of the former New York Telephone building at 1095 Avenue of the Americas, which sold for $2.2 billion.
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Heidi Learner

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