NYC's Investment Sales Dropped Again To Start 2021 After Hints Of Recovery
Investment sales in the nation's biggest real estate market dropped significantly in the first quarter of the year, hitting their lowest point in a decade following a glimmer of hope in the second half of 2020.
Only 78 sales closed in New York City between January and March, a 49% drop-off year-over-year from 152 sales during Q1 of 2020, according to Avison Young data released Thursday.
The first quarter of 2021 was even worse for investment sales than the peak of the health crisis in New York City, when capital markets were effectively frozen as the city shut down — at the time, some deals agreed to before the coronavirus pandemic closed, propping up the market.
The total dollar volume of investment sales across the city was less than $1.4B, 41% below the average of the previous three quarters.
Only four Manhattan office buildings changed hands for a combined $88.9M, including the Kaufman Organization's ground lease for 135 West 29th St., down almost 90% from the average of the previous three quarters. The average price per square foot was up slightly, indicating that sellers not in distress are not yet willing to drop their asking prices.
“It’s not enough data to really support what's going on here,” Avison Young Tri-State Investment Sales Group principal James Nelson said. “Unfortunately, I think that with office sale prices it's going to have to get worse before it gets better.”
Nelson, who leads the local investment sales group for the private brokerage, thinks the first quarter is likely the bottom of the market, as activity has picked up in recent weeks.
“I would like to think that this is certainly going to be the turning point for the market … These sales reports are rearview indicators,” Nelson told Bisnow in an interview Wednesday. “The leading indicator to me on market activity is property tours … and we've got some buildings in the market now, where we're doing over 10 tours a week.”
Investment markets appeared to be on the road to recovery in the final two quarters of last year with transaction volume and dollar volume rising, but these indicators dropped again in Q1, with 47% fewer sales than Q4 2020 and 63% less dollar volume.
"I think what we have to realize is that there is almost always a spike in fourth-quarter sales," Nelson said. “The most important thing to realize with these numbers is when a lot of those deals were getting negotiated, we hadn't rolled out the vaccines yet. If you just looked at the numbers in a vacuum, you'd say, you know, another awful quarter."
Compass Vice Chair Adelaide Polsinelli said she, too, is seeing more investment sale interest and activity. She's closed or engaged in deals for a retail building, a multifamily property and a medical property, she said. Businesses considering space are looking to take advantage of the down market for real estate deals.
“It was a long, hard year but there are signs of life springing up,” she said. “It took a year of hard work to get to this point. All of my buyers are new to the market, and most are users.”
Manhattan's most active class was multifamily, with $667M changing hands across 13 buildings. The dollar volume was more than double the trailing average, and those assets are increasingly priced to move, with per-SF prices down 14% from the previous three quarters' average.
The biggest deals of the quarter included the 332-unit apartment building at 15 Park Row, which was purchased by Atlas Capital Group for $140M, and the 490-unit apartment building at 265 Cherry St., purchased by Related Cos. for $424M.
Looking ahead, Nelson said he is interested to see how the rise of logistics and micro-distribution affects the Manhattan retail market.
“You hear about all these ghost kitchens and Amazon is saying that they want to open up 1,500 micro-distribution centers throughout the country,” he said. “How does that work if you want to have a smaller facility where you can use that to deliver goods to a neighborhood?”
Cost of land dropped 8% in the first quarter as well, with 17% fewer transactions than the trailing three quarters. Nelson said he expects commercial real estate sales will pick up significantly once the impact of the vaccine rollout kicks in.
"I would say that the mantra always used to be that the job numbers [are] the most important driver of the real estate market, now [it] is the vaccination rate which is going to be the driver here."