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BisnowTV: New York Real Estate Morning Update - presented by EisnerAmper

Everything you need to know about last week's top real estate news.

Video Recap:

Starting off with global economic news, Bloomberg reported last week that Goldman Sachs analysts say both Europe and the US financial markets are vulnerable to declines and in for a bumpy ride the remainder of the year as political risks exacerbate Europe’s weak economy and the US S&P 500 Index faces a projected 2% decline by December. 

Though US corporate earnings have greatly impacted share prices these past 18 months, analysts may be underestimating corporate profits this quarter, as most are expecting the earnings recession to reach 18 months in Q3. Within the July to September period, analysts predict S&P 500 Index members’ earnings will fall 1.6%. But it’s more likely the expected decline will evolve into a gain and companies will beat those estimates, Bloomberg reports. 

Though analyst forecasts have grown more pessimistic in recent weeks, US companies have been exceeding their forecasts by an average of 3.6% in the past five years.

Now focusing on the US economy, September’s job report is officially in!

According to the Wall Street Journal, the US economy created 156,000 new jobs in September and wages ticked up, suggesting a rate hike may not be far off as the labor market looks increasingly steady. 

Non-farm employment rose by the smallest amount since May, according to the Labor Department, and unemployment rose one-tenth of a percent to 5%. That rise is considered a good thing as it suggests previously discouraged Americans are re-entering the job search. 

On top of that, private sector wages rose an average of 0.2% from a month earlier, hitting $25.79 an hour. September's modest job gains follow the 151,000 new jobs created in August. Despite the gains, millions of Americans are still underemployed. Those who are jobless, involuntarily working part time or are too discouraged to look for work stands at 9.7%.

Though the labor market looks increasingly steady, September's job gains missed expectations for 176,000 job gains with 156,000 new jobs created for the month, up from the 151,000 jobs created in August. Economists told Bisnow this year's job growth deceleration was of little surprise as monthly job gains have been decelerating since they peaked in 2014. Most economists believe the US Federal Reserve has enough incentive to move interest rates in December, though recessions and perceived global uncertainty facing many global trading partners could delay the Fed's decision. 

Bob Bach, Director of Research for the Americas at NGKF, said “the Fed is likely to raise rates by a quarter-point at its December meeting. It can’t wait too much longer because inflation is beginning to stir.”

Could the Fed delay rate increases, given little inflationary pressure? Sure! But REIS Chief Economist Victor Calanog says they are really in a "damned if you do, damned if you don’t" position, and given the benefit of hindsight they should perhaps have raised rates several times when the local and global economy were stronger back in 2014."

Shifting focus to the NYC Multifamily marketplace, Manhattan continued to show its strength in Q3 as a surge of new luxury development closings pushed the average sales price and median sales price up from 2015. But this success may be tapering off, as these stats were slight decreases from the previous quarter.

Average sale price for luxury condos, for example, increased 14% year-over-year to $2M, while median sales price jumped 6% to $1.1M. But those are 2% and 3.7% quarter-to-quarter decreases, respectively. Price per SF followed a similar pattern, increasing 3% year-over-year, but decreasing 2.5% from last quarter. Manhattan condos had the strongest year-over-year increase, with average price increasing 25.4% to $3M and median price increasing 9% to $1.7M. But, again, these were slight quarter-to-quarter decreases. Downtown had the highest median prices for three-plus, two- and one-bedroom condos. It was also the highest-grossing neighborhood, with $595M in condo sales in September, and had the highest price per SF ($1,961/SF).

Midtown was a distant second.What’s definitely better than last year, however, is Manhattan’s demand, as the amount of time it took to sell an apartment shrank to only 48 days, a 14% decrease from last quarter. But, TOWN Residential founder/CEO Andrew Heiberger believes the pipeline has begun to taper, and Manhattan’s true strength will be tested in the upcoming months.

In retail news, Crain’s ran coverage last week on a report from the Downtown Alliance that shows reason for optimism in the retail sector downtown. In short, Lower Manhattan is full of young New Yorkers looking to part with substantial amounts of disposable income, a finding the Alliance hopes will spur neighborhood landlords to allocate more space for restaurants, bars and entertainment.

Sixty percent of apartments in the Financial District, Battery Park City and South Street Seaport are occupied by single tenants, nonrelated roommates or unmarried couples who don’t have to spend cash on childcare. That’s one of the highest rates in the city. Lower Manhattan is still roughly three-quarters commercial, but the number of area apartments has more than doubled since 2000. And young professionals, who dominate those apartments, reportedly spend $356M a year on shopping and entertainment, more than half of which is spent outside the district for want of appealing options.

Diversifying the building stock to make lower Manhattan more of a 24/7 neighborhood is part of a long-running effort to bolster a commercial market that has not seen the same growth as other business hubs. Today, rents in the area are nearly 25% lower than the rest of Manhattan and, even after a tax subsidy that rewarded landlords who converted commercial space to residential expired in 2006, the residential population has continued to grow. With retail leases commanding rents many times greater than commercial space, catering to that demand could be a boon for landlords.

Finally this week, on the subject of young professionals, the oldest Millennials are reaching the magic age of 35 this year, and that’s good news for the economy because that's when one’s peak spending years typically begin.

Over the next few years this group’s total spending is expected to increase by 25%, according to a Morgan Stanley report. That’s a big deal for the economy considering the US Bureau of Labor Statistics found Millennials account for nearly $1 trillion of consumer spending each year, with people between the ages of 25 and 34 spending an average of $48k each in 2013. 

And seeing as personal consumption expenditures make up almost 70% of US GDP, should Millennial spending increase by the expected 25% we can expect GDP to grow by 1.35%, adding an extra $250B to the economy.