Despite Q4 Slump, 2022 Was Better Than 2021 For NYC Investment Sales

The last quarter of 2022 brought significant decreases in both sales prices and volume in New York City commercial property sales, ending a year dominated by rising rates with a whimper.

In all of 2022, $16.2B of properties traded across 315 sales in Manhattan, a 56% increase from 2021, according to Avison Young data provided to Bisnow.

The data shows how strong the year started, because activity dropped precipitously when the Federal Reserve began increasing interest rates in the middle of the year, Avison Young Tri-State Investment Sales Group Head James Nelson said.

“The big deals, the megadeals that are fueling the market, the majority of those were signed before rates went up,” Nelson said, adding that of the top 10 sales of 2022, only one closed in the second half of the year. “A lot of the stuff that even closed in June, July, I would argue that that deal was in contract before mid-June when rates started going up.”

Manhattan sales volume in Q4 was $3.3B across 75 sales, representing drops of 12% and 32% compared to the trailing four-quarter average. The priciest sale of the year was Google's purchase of 550 Washington St. for $1.97B, followed by Blackstone’s $930M acquisition of the luxury rental tower 8 Spruce St. Extell’s $927.5M purchase of the Disney campus portfolio on the Upper West Side was the third-most-expensive trade, followed by the $873M sale of the American Copper Buildings to Black Spruce.

Multifamily was the top performer in the fourth quarter, with $1.4B of sales — a 23% decline on the average of the previous four quarters, per Avison Young.

Nelson said average cap rates have risen to 4.97% while the average price per SF on properties is $742, down 11%.

“So that's that inverse relationship," he said. "If investors are demanding a higher return, higher cap rate, that is going to push down pricing on a per-SF basis."

Major trades in the multifamily market included Empire State Realty Trust’s purchase of 298 Mulberry St. for $114.9M and A&E Real Estate's acquisition of 160 Riverside Blvd. for $415M in the third quarter.

"We're still seeing investor appetite for this, especially now the yields are coming up a little bit,” Nelson said.

Office took a more significant hit. For that asset class, the average price per SF was $495 in the fourth quarter, down 53% on the trailing four-quarter average. Nelson said that number is “totally misleading,” as it doesn't factor in the quality office buildings that traded. Office sales volume in Q4 was $860M across just eight transactions, a 59% and 20% decrease off the trailing four-quarter average in 2021 and 2020, respectively.

“It really depends what types of buildings sold that quarter,” Nelson said. “If you look back earlier in the year, it was a lot more Class-A product. Even last quarter there was a building that sold down in the West Village on Morton Street that went off at well over $1K [per SF].”

The biggest office sale of the fourth quarter was the sale of 1440 Sixth Ave., which Empire Capital Holdings bought for $320M, or roughly $609 per SF and a 6% cap rate.

Manhattan retail saw $107M in volume in Q4 across 13 sales, seeing an average cap rate of about 6.5%. The biggest retail trade of the quarter was RFR’s acquisition of 102 Greene St., paying $3,373 per SF — a total of $32M — at a 6.41% cap rate.

“I think we've certainly experienced a correction in pricing,” Nelson said. “That is directly attributed to rates going up. We certainly knew for income-producing property, whether it's multifamily, whether it's retail, if the cost to borrow in many cases is increased by, call it 200 basis points, in many cases, yeah, that's going to make an impact.”