NYC Property Sales Are Inching Upward But The Big-Ticket Sales Still Aren't Back
Sales volume in Manhattan’s commercial property market increased slightly in the third quarter of the year, with multifamily trades being the major driver of the market.
There were a total of $2.3B worth of commercial real estate trades across the city between July and September, according to Avison Young data, marking a 3% jump on the trailing four-quarter average. Although it is improving, the market is far from back to normal. The year is on pace to see just $8.6B in sales, compared to a 10-year average of $36.2B.
“You can already see we're on a positive trajectory here,” James Nelson, principal and head of Avison Young's Tri-State Investment Sales group, said at a press briefing Thursday. “Our group only closed 10 sales in the first half of the year; it was really, really tough. We've already closed that many in this quarter.”
In Manhattan, there were 55 sales for a total of $1.1B, the best quarter since the start of the coronavirus pandemic and potentially signaling the start of a recovery, per AY. Typically office assets are the big-ticket items that make up the lion’s share of the sales volume. However, the multifamily side of the market had the most activity during the quarter, with some $417M across 32 sales. That number of transactions marked an 83% increase from the average of the previous four quarters.
The average price per square foot, however, dropped by 12% to $634. AY painted this as an overall positive as well.
“This is why I am so bullish on Manhattan multifamily: average cap rate last quarter was almost 5%,” Nelson said.“OK, everyone loves to talk about Nashville and Austin and these growth markets. Well, guess what, if you go down there, you're buying a three cap.”
By comparison, on the office side, just seven properties were sold during the quarter with a total sales volume of $341M. Prices dropped 20% to an average price per SF of $815. A glimmer of hope in that sector of the market is the planned sale of the St. John’s Terminal for $2.1B to Google, which is set to close either this year or early next.
Meanwhile, retail saw only three transactions, totaling $61.5M — though Vornado’s sale of five retail properties in prime New York City strips at a multimillion-dollar loss for the seller will push up the volume in the coming months. In the development sales world, there were six transactions for just above $241M total. The sale of 111 Washington St. for $89M was the biggest sale of that asset type in the quarter.
Nelson said potential upcoming policy changes are making buyers skittish about buying that kind of investment, noting that land value in Manhattan has dropped 44% over the past four quarters.
“At this point, you can actually build a rental in Manhattan, which is kind of cool, because that hasn't happened for a while. That being said, that party's about to be over because developers are now pumping the brakes waiting to hear what happens in June of next year with the 421a,” he said. “And what we're hearing from our friends at REBNY is that it will be extended, but likely with a lot of changes."
Major deals of the quarter included the sale of a 12-property portfolio of multifamily buildings on the Upper East Side for $61M. The $107M sale of office property 345 Seventh Ave. closed in the third quarter, as did 576 Fifth Ave., which went for $101M. On the retail front, 121 Spring St. sold for $33.6M, the biggest sale of that type for the quarter.
The health of the investment sales market was a topic of discussion at Bisnow’s National Finance Summit this week, with many saying they are looking beyond the city and to second-tier markets to deploy capital.
“In 2019, Manhattan volume was No. 2 in the country, and guess what we are today … We’re No. 13,” Meridian Investment Sales Senior Executive Managing Director Helen Hwang told the audience during the event. “Dallas [is] No. 1, then Atlanta, then Phoenix.”
She said, however, when looking at deals that are under contract, Manhattan is No. 1, indicating that the city is in rebound mode.
“There's some really large transactions on the market right now.”