NYC Multifamily, Office, Hotel And Retail At Mid-Year
June’s jobs numbers bode well for the second half of 2016, but will that translate to good things for commercial real estate? We checked in with experts on NYC’s biggest asset classes to give us a sense of their key takeaways from the market’s performance in our neck of the skyscrapers in the year’s first half.
GFI president Michael Weiser says the general multifamily marketplace was a little less exuberant than this time last year. The reason for this slowdown, he says, comes from increased pause in buyer sentiment. Buyers wonder whether the market’s momentum and rise in pricing is sustainable, Michael says.
This comes as the prospects of vacating regulated apartments has become less likely and the process more difficult. As such, Michael’s noticed both a major slowdown in the purchase of smaller, six to eight-unit buildings—particularly in Brooklyn—and a widening bid-to-ask spread when it comes to larger properties.
Add to this the recent rent freeze, which has spooked buyers, and Michael says the second half of the year will be a crucial time for multifamily. With buyers reluctant to jump on deals with little visible upside, landlords hesitant to invest in their properties, European investors no longer seeing NYC as the comparatively cheaper market.
Those are the knowns. There are some unknowns, too, like uncertainty over how things like Brexit and the rent freeze will affect the “rules of the game.”
Still, Michael says NYC will still be one of the country’s top multifamily markets—with Manhattan maintaining its steam, Queens on fire and the Bronx remaining a “value play”—but it will be harder than ever to maintain that status.
Well, folks, the hotel market looks like it’s hit its peak in NYC, and the first half of the year is when it really became clear. LW Hospitality Advisors’ Daniel Lesser puts it like this: “Generally, for those that bought hotels between ‘09 and ‘11 and were thinking about selling, you most likely missed last year’s peak levels.”
Concerns about oversupply, which grew louder in the first half of the year, have some weight behind them. As one measure of how rough it could get, Morningstar projected this spring that about $731M in CMBS loans on hotels face an elevated default risk within the next two years. Hotel developers have apparently gotten the memo. According to The Real Deal, just six permits for new hotels were filed in Q1 citywide, for example. That’s two fewer than were filed just in the outer boroughs just in the month of December, 2015.
“Be vigilantly aware of new supply,” Daniel says, pointing out that any financing for a hotel project in the city that hasn’t yet been secured will be a tall order to lock down at this point.
Things started shaky in the beginning of the year for the office market after the brief correction in the stock market, CBRE vice chairman Howard Fiddle says, and nervous investors began predicting a rough year. With more product hitting the market in the form of the World Trade Center and Hudson Yards (above, right), it seemed certain that the bull office market was over and rents would dip. But Howard notes that rents have remained stable and even increased in some situations.
What has declined, however, is Midtown leasing activity, which is currently resting at 5.7M SF, down from 8.7M SF this point last year. But “like a car going from 90 MPH to 55 MPH,” Howard says, this difference in leasing activity only seems considerable because we’re comparing it to 2015, which had the third highest activity in NYC history. With more big deals on the horizon for later in the year, Howard believes the numbers will look much better at the year’s end.
This optimism was shared on the sales side of offices as well, as Eastern Consolidated senior director Jeff Nissani noted that office building sales—usually a low velocity sales market—have surged with the change to REBNY's method of measuring in Manhattan over the last few years, which has allowed astute investors and landlords to unlock huge potential in their buildings and sell for much more than they anticipated.
And, with the change in stabilization laws and a struggling retail market, multifamily and retail buyers have begun looking at the strongly appreciating office sales market, making it one of the highest sought after markets in NYC.
Speaking of retail, Winick Realty’s Josh Siegelman tells us at least in Manhattan, he’s noticing deals taking longer to complete than in the past. “People can’t easily put their finger on where the market is right now,” he says. “There’s still a disconnect between what retailers owners think they’ll get value from and what kinds of rents retailers can afford.”
Some big landlords, like Thor Equities, responded to the uncertainty in the first half of the year by thinning out their retail portfolios and putting a bigger chunk of their resources into multifamily and, in Thor’s case, Brooklyn’s burgeoning waterfront office market.
The disconnect comes amid a shift Josh notes, whereby more retail is catering to a sophisticated, health-conscious consumer that wants a range of choices in product types where until recently there might have only have been one or two. He cites LuluLemon’s increasing competition as a purveyor of yoga gear as a sign of the times to be expected as the year rolls on.