Lessons Learned from Listing Inventory

In residential apartment sales in Manhattan, much focus is typically given to inventory, absorption, and in-turn pricing. According to the Miller Samuel’s report, there are now 8,000 apartments in Manhattan for sale, which is higher than the 10-year average of 7,000. This means that Manhattan has a 9.8-month supply of apartments to sell. As a result, CNBC proclaimed it a buyer’s market as the average price dropped 3% and the median price to 2%. 

By contrast, the inventory of investment sales is opaque to say the least. Unlike residential, where almost every apartment is publicly listed (I’ve been told less than 5% are “FSBOs,” ie For Sale By Owner), only about a third of commercial sales are broadly marketed in the first place. This is partly because many exclusive brokers choose not to widely market their listings, preferring to keep in-house, while many sell off market—very unusual in the residential world. 

Based on the listings that are made publicly available, CoStar (together with their company LoopNet) is the closest proxy. See below their numbers for their Manhattan investment listings and sales:

                                     2020                    2021                     2022                     2023                       YTD

Listings:                        269                      286                       390                       532                        772

Sales:                            418                       694                       598                      498                        402

Ratio:                            155%                    242%                   153%                  94%                      52%

What does this tell us? Here are my observations:

1)         Listing inventory has been steadily increasing over the last five years, with the largest jump at 45% from 2023 to today. 

2)         CoStar was tracking more sales than listings from 2020–2022. Many of these sales were not listed in the first place, but this ratio still shows strong absorption. Whereas 2023 and year-to-date (YTD), would suggest that many more listings will fail than sell. 

3)         The five-year high in sales of 694 in 2021 would not absorb all the listings that are currently on the market. 

The Avison Young Tri-State Investment Sales Team has seen an uptick in listings YTD from 97, up from 72 last year, but not as dramatic an increase at 34%. However, our peak listings over the last five years were 109 in 2022. After interest rates began increasing in June of that year, our team began shedding listings as the market moved away from many of our clients. Whereas on CoStar, the listings began to stack up.

Further, we became much more strategic with the assignments that we took on. With almost 500 broker opinion of values that we completed last year, we “only” listed 17%. Typically, our “success” ratio is about a third in a normalized market. This doesn’t mean that we’re losing every other assignment to a competing brokerage firm. In fact, in a hot market, when debt is cheap and plentiful, brokers find that our biggest competition is our clients electing to refinance instead of selling. 

Whereas in a down market, we are passing on many assignments due to sellers’ expectations. Over the last two years, those expectations are mostly driven by what’s needed to satisfy debt that is coming due. The first thing that we now do when valuing a property is to check the debt on the property. If the borrower is upside down, we advise that we cannot assist unless the lender is on board with the sales process. (See whitepaper on Why Short Sales Are Better).

One active multifamily investor who tracks the market closely had this to say:

“September is usually the best month for new deals (~$2.5b the last two years) and this time around was only $400 million, which does not bode well for Q4 investment sales activity. Listing have increased seemingly because people are bringing back deals from 2022/2023 that did not sell, which is a lot of the Q4 new deal activity.”

This is the contrary to the overall increase of sales listings across asset classes. This may be in part due to the Fed dropped the rate by 50bps, the long-end of the Treasury curve is up 40bps since that date. The multifamily market has been relying on Fannie to drop spreads since they are so far behind in product, so some sellers may be waiting for more favorable financing to be available.

Keeping this in mind, what do sellers need to know? There is more listing inventory coming online so there will be more competition when selling. Sellers should be cautious that their broker is not overpromising and under delivering, especially when faced with pressure from a lender.   

As for buyers, I recommend looking to buy from brokerage firms that price listings appropriately and have a client who is willing and able to transact. Understanding why a seller is selling becomes even more important today as establishing sellers’ motivation is essential. 

I recently wrote about the psychology of the real estate market, that with the recent Rate cut, there will no doubt be plenty of buyers who come off the sidelines looking to transact which could help absorb inventory. They will be met by many more sellers willing to list. Although market conditions are improving, sellers will now have more competition in the marketplace.