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Knakal: ‘Cracks emerging’ on New York investment sales market

While the new year is poised to deliver the old year’s office leasing strength, Cushman & Wakefield’s chairman of New York investment sales, Bob Knakal, made it clear that purchasing may lose a bit of momentum.

“2015 was a great year, but as we progressed through the year on a quarter over quarter basis, we started to see some cracks emerging,” Knakal told the audience at Cushman’s year-end press breakfast on Tuesday morning.

“If you look at the third quarter of 2013 through last quarter, that is an unprecedented run of activity in the market,” said Knakal, who labeled 2014 and 2015 as “the best time” to be an investment sales broker in the 32 years that his career has spanned.

Photo by Celynek/ Flickr
Photo by Celynek/ Flickr

He pointed to the values increasing in the rebuilding years following the dismal end of the previous cycle and credited the climb back from a 38 percent drop as fuel for a frenzy of activity.

“We had this incredible boom period in terms of number of properties sold and, from our perspective, we always look at number of properties sold as a much better indicator of market activity than dollar volume, because large transactions can skew that dollar volume very significantly,” he said. Knakal noted that fewer buildings were sold in 2015 than 2014, though he conceded that 2014’s strength made it very hard to match.

“If you look at what happened last year — approximately $75 billion worth of investment sales transactions — so we set an all-time record in dollar volume (but) number of buildings sold was down. Those were both occurrences that we projected at the beginning of last year, so those were not surprising.”

Knakal continued and said that “statistically we did have less buildings sell in 2015 than ʼ14, but ʼ14 was such an unbelievable year that, if we didn’t have the spike we had in 2014, ’15 would have been the all–time record.”

“Last year was the year of the mega deal,” said Knakal. In 2015, there were 133 properties that sold for over $100 million and nine that sold for over a billion. That compares with 99 and four for 2014.

Knakal said that 2015’s “fairly significant drop” in the number of properties that were sold hints that 2016 may not provide an immediate remedy for the dip.

“If we look at what has transpired over just the last two or three months, we’ve seen tremendous resistance in land pricing that can achieve the same level that we were at, let alone any increases in values,” said Knakal, noting the $300 price point per buildable square foot citywide for the year.

“When land is going down in price, people don’t see,” Knakal added referencing historical precedents.

As for the leasing arena, it’s all systems go. Citing job growth, a robust TAMI sector, and the strongest year-end vacancy rate since the conclusion of 2008, Cushman & Wakefield expects the sector to remain robust through the next 12 months.

“2015 was a very strong year, and we are optimistic that the combination of a healthy TAMI sector, coupled with stronger growth in financial services, will continue to drive the market forward in 2016,” said Ron Lo Russo, president, New York Tri-State Region.

“New York City has experienced extraordinary job growth over the past five years. We expect that the city will continue to act as a magnet to the young professional millennial worker that companies are seeking to hire,” added Ken McCarthy, principal economist.

The high leasing demand resulted in 28.2 million s/f worth of new leases being signed. This is the third highest total in the past decade. The activity triggered a 5.7 percent rise in Manhattan asking rents from $67.70 to $71.58.

The strong leasing volume lowered the overall Manhattan vacancy rate to 8.5 percent, the lowest it has been since year-end 2008, when the vacancy rate was 8.1 percent.

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