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New York market sending mixed signals as summer draws to a close

By James Nelson, Cushman & Wakefield

The New York City Investment Sales market managed to post gains in the First Half of 2016, rising to an all-time high of $560 per square foot, a 15 percent increase over 2015.

These records were even more pronounced in Manhattan where sales rose to $1,630 per square foot, a 23 percent increase, which is equivalent to a low cap rate of 3.73 percent, buoyed by a few $17,000 per square foot retail sales.

Without them, the gain would have been around a more modest four percent increase in Manhattan, or seven percent citywide.

Although pricing achieved peak levels, sales volume has declined.

2016 is on pace for a total of $63.1 billion in sales, the second highest ever, but a 28 percent decline from 2015.

Meanwhile, the number of sales dropped by 13 percent to an annualized 4,514 sales.

When looking at statistics, it is important to remember that recorded sales are typically negotiated three- to six-months beforehand when the contracts were signed.

Based on what has felt like a slower summer for contract executions due to upcoming presidential elections and overall global uncertainty, it would not surprise me if we saw eve a further reduction in sales when the second half of this year is recorded.

That all being said, the development market has suffered large declines in activity with dollar volume cut in half since 2015, while the number of sales values have fallen 12 percent.

Manhattan surprisingly posted a nine percent increase in price to $694 per bsf, likely because those owners who sold achieved their pricing whereas others who did not, held onto their property.

On the office leasing front, New York City has been boosted by strong job growth with 4.3 million people now employed, including 1.36 million office jobs contributing to a low unemployment rate of 5.3 percent.

After a slow beginning to 2016, Manhattan leasing has picked up with a total of 5.9 million square feet in renewals, which is already more than last year. Vacancy held at 8.8 percent even with 12.2 million square feet of office product under construction.

By 2020, it is anticipated that 31 million square feet of office will be added, more than the 27 million square feet of office in all of Denver.

Lastly, office asking rents rose to peak levels at $73 per square foot but concessions have been growing, including T.I. levels at over $80 per square foot in Midtown, in many cases.

The growth story continues to be about Brooklyn, as it has had the highest job increase in New York City with 24 percent since 2009. This has led to 8.4 million square feet of office product currently under construction with an additional 5.1 million square feet planned, totaling 41 million square feet, which would still be well below Manhattan’s anticipated 430 million square feet.

Brooklyn office remains an anticipative bargain at $40 per square foot with further discounts of up to $15 per square foot with REAP tax benefits, compared to Manhattan’s $90 per square foot for new construction.

Finally retail appears to be choppy at best. Asking rents only improved in three out of the ten main submarkets tracked, Meatpacking, SoHo, and Lower Manhattan.

However, availabilities in Meatpacking and SoHo respectively, hit concerning levels of 22 percent and 25 percent. Herald Square and Fifth Avenue, between 42nd and 49th, also had availability at 22 percent and 27 percent, respectively.

Overall, there are many mixed signals in the market.

Strong office leasing and prices for investment sales are reasons for hope, but the development market and most retail locations tell a different tale.

Finally, there are outside factors that could come into play, such as the impact of Brexit and the upcoming presidential and mayoral elections.

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