Observations from NYC's Q2 Uptick In Sales

Observations from NYC's Q2 Uptick In Sales

When we present our Property Sales Reports, I always preface that these are rear-view mirror indicators. Closed sales are typically negotiated four to six months prior to the transfer being reported, as it typically takes several weeks to negotiate a contract, 90 days to close and then for the recording. Thus, our Q2 2024 NYC Property Sales Report speaks to contracts being signed at the beginning of this year. We can now say that we are finally seeing an uptick in sales after the pandemic, and the more impactful, unprecedented rate hikes.  

Dollar volume in Q2 2024 for New York City increased 25% over Q1 to $3.73 billion, annualizing at 39% increase over 2023. Manhattan fared even better when annualized at a 51% increase over 2023. So, what is driving this in Manhattan?

·       There were 29 multifamily sales that combined for $706 million, a 32% quarterly increase. Average cap rates at 6% signaled    attractive yields to investors.

·       Land sales totaled $280 million, a 36% increase but spread only over 4 sales which were all condo developments. We look forward to rental developments driving sales volume higher on the heels of recent 485-x passing.

·       Retail sales increased on a price per square foot to $1,770-sf based on such high profile sales as 680 Madison Avenue, a retail leasehold that registered a cap rate at 9%. 

·       Office sales volume more than tripled to $873 million with Bloomberg Philanthropy’s purchase of 980 Madison Avenue at $560M which was staggering $4,500+-square foot.

This sales activity was driven in large part from local private buyers who made up for 58% of purchasing according to RCA data. In addition to Bloomberg’s top purchase, Sovereign Partners stepped up to acquire Nuveen’s 780 Third Ave for $177 million. These buyers were also largely domestic. After a spike in foreign investment last year which accounted for 35.6% of purchases in 2023, their market share dropped to 18.6% in the first half of 2024 (1H). Institutions and REIT remained relatively quiet at a combined 16.7% in 1H down from over a third of dollar volume in peak years in 2014-2015. 

Meanwhile, seller composition has begun to shift slightly. In 2023 private owners accounted for 52.8% of sellers; year-to-date is now at 43%. What group has become more active sellers? Institutions and REITS which jumped from 30% last year to 43% in 1H. This signals that institutions are becoming more comfortable (or in some cases needing to transact now). Hopefully they will drive more of the purchasing activity for the rest of the year as I suggested in last month’s report

Lastly, in our Q2 State of the Market presentation, there was also great insight on the return to office, leasing activity, and the capital markets. As of June 2024, office buildings across the U.S. are 61.9% as busy as they were in June 2019. Office buildings in Manhattan are outpacing this national average at 76.6%– putting our market significantly above the U.S. and peer markets’ averages in terms of return-to-office efforts. Consulting, research, accounting & recruiting led the way with more office visitation in June 2024 than in 2019 by 24.1%.

Through the first half of 2024, Manhattan leasing activity has been quite strong compared to other post-pandemic years – surpassing three out of the last four years’ midway point. At 14.6 msf, 2024 leasing activity is up 18.7% from the same time last year despite remaining significantly below the pre-pandemic (2000 – 2019) half-year average of 21.1 msf.

Year-to-date, trophy & class A properties have captured 78.2% of all Manhattan transaction activity by square footage. This is trophy & class A’s highest share of transaction activity since 2020. 

Total available space in Manhattan began to stabilize in mid-2021 and has remained that way ever since – currently at 100.8 msf. The overall availability rate has remained nearly unchanged from Q1 2024 at 19.6%, despite a slight decrease in available sublet and direct space. 

In the capital markets, many market participants have acclimated to the current rate environment. 

·       Capital (debt & equity) is available for transactions of all types if the deals work at current rates. 

·       CMBS market has rebounded sharply…but not evenly.

·       $44.2B of CMBS issuance in the first half of 2024 was 12.3% above full-year volume for 2023. $24.9B of this was floating rate. (Commercial Mortgage Alert)

·       $31.0B of this was from SASB deals which has been dominated by a handful of borrowers such as Blackstone and Brookfield.

Supply / Demand Dynamics

·       5-Year Loans: Borrower demand has made this the dominant component of the conduit market, which is atypical.

·       10-Year Loans: Weak borrower demand for 10-year loans has led to few 10-year pool offerings, resulting in perception of increased warehouse risk for banks making sizeable 10- year loans. This is especially noticeable for large deals which are not large enough to be issued as a SASB.