By Jake Kaiser, director of sales, Goldenwood Property Advisors
The last quarter of 2018 saw a flurry of activity in the Manhattan boutique office market. (between 5,000-100,000 square feet).
There were seven boutique office buildings that sold in Q4 of 2018. Co-working companies aggressively absorbed space at record levels in boutique office buildings in Midtown South and Downtown Manhattan.
In addition, tech behemoths Amazon and Google announced they were locating new headquarters in Long Island City and Hudson Square respectively.
Below is a break down of the activity in each boutique office market in Manhattan in 2018.
In 2018, Midtown had 25 boutique office properties change hands. Of the 25 sold, nine were purchased for office investment or user purposes. In the central midtown area, an 87,000 s/f office building located at 9 East 40th St. sold for $809 psf in April. This was followed by two boutique office townhouses that were sold in the Plaza district. 26 West 56th St. was bought by Vida Shoes International for $14 million at $1,225.9 psf. Then in November, DLT Entertainment sold their 7,616 s/f headquarters at 124 E 55th Street for $3,006 psf. The building also had 17,000 s/f of air rights. The buyer was an unknown LLC and the property will likely be converted for personal residential use.
Midtown South saw six boutique office sales in the 2018, five of them occurring in the last two months of the year. Notable sales include 48 West 25th St. in Chelsea, a 97,554 s/f office building bought by Savanna for $922.57 psf as well as 28-30 West 22nd St in Flatiron, which sold for $31.5 million at $1,149.22 psf.
The average price per square foot for Midtown South boutique office properties decreased 23 percent from $1,128 in 2017 to $866.68 psf in 2018. That number can be attributed to the property size.
The six transactions in 2018 combined for 238,785 s/f and $206.96 million in dollar volume compared to the five transactions in 2017 that amounted to 119,492 s/f and $134.83 million in dollar volume – much larger buildings were sold in 2018, hence the drop in price per square foot.
Downtown Manhattan (south of 14th street) boutique office market had a strong year.
There were five boutique office building sales recorded downtown in 2018 amounting to $195.87 million in dollar volume. This was a 52 percent increase from $94.74 million in 2017.
K Property Group was responsible for most of the activity in downtown Manhattan, acquiring $92.75 million worth of boutique office properties in Soho in two separate transactions involving three different properties.
NoHo saw one boutique office trade this year when 43-49 Bleeker Street, a 33,737 s/f property, sold for $40.88 million and $1,076 psf.
Marx Realty bought a package of boutique office buildings on Bowery on the Lower East Side for $1,430 psf. In addition, L3 Capital announced in June their plans for a boutique office property development at 216 Bowery. The average price per square foot for boutique office properties in Downtown Manhattan last year was $1,395.98 psf.
The Upper East Side saw a five percent uptick in boutique office sales dollar volume in 2018 from $193.25 million in 2017 to $203.90 million in 2018. For the second year in a row, there were five transactions of boutique office properties in the district. Three of the five boutique office properties sold on the Upper East Side last year were townhouse office properties. The average PPSF for townhouse office properties was $2940.78 psf , a 12 percent decrease from the average in 2017 when it was $3,301.68 psf.
One notable boutique office sale was 770 Madison Avenue, which was bought by Adeam, a Japanese fashion brand for $31 million, or $4,532 psf.
The average hold time by ownership of Upper East Side boutique office properties that sold was about 40 years in 2018.
In Uptown Manhattan, the only boutique office that sold was a 25,000 s/f four-story office building located at 75 West 125th street which as bought by Gatsby Enterprises for $19.45 million. This sale came out to $778 psf. Seller Carter Federal Savings Bank had owned the property for 24 years before they sold it in February 2018.
Uptown Manhattan average office PPSF in 2016 was $700 then $610 in 2017. Properties on125th Street in Harlem have garnered considerably higher prices then others uptown primarily because of the high-volume foot traffic and proximity to many different methods of transportation.
The average hold time for office properties in Uptown Manhattan based on comps from 2016-2018 was 15 years. Uptown Manhattan office rents in 2018 averaged between $35-40 psf.
Co-working companies in 2018 competed vigorously as they absorbed record amounts of office space and emerged as one of the biggest occupiers of boutique office spaces. The We Company, formerly known as WeWork, in August of 2018 become the largest office space occupier in the city occupying then 5.3 million square feet.
Going into 2019 there are some interesting factors that should come into play. Interest rates are expecting to rise which could cause an uptick in transactions as investors sell non-core assets in their portfolio in effort to purchase more valuable core assets that are coming down in price due to interest rate hikes. Amazon, Google, and Disney announced huge corporate expansion into New York City in 2018, which could be a great sign for boutique office owners.
This will help to bring hundreds of small and medium sized business in these industries to New York City and the outer boroughs, so they can be close to the action.