New York City appears to be on the cusp of entering a new price point in Manhattan trophy real estate, with multiple office assets now being traded at per square foot sales prices “greater than $2,000 per square foot,” according to Carlton Group chairman Howard Michaels.
According to the finance broker, Manhattan trophy real estate is “cheap by international standards” and international investors are attracted to Manhattan office assets over other major cities like London, Paris, Geneva, Singapore and Hong Kong.
The Carlton Group sees a “highly liquid market” with money coming into New York from Canada, Europe, the Middle East, China and other major countries around the globe.
The Carlton Group cites several key factors which make investing in Manhattan office assets economically superior to its international peers:
• Higher Cap Rates: Manhattan office properties are valued at an average 4.7% cap rate, almost 30% higher than the average global competing cities’ prime office property cap rate of 3.7%.
• Higher Rent Growth: Average rent growth at Manhattan office properties in 2012 was 6.6%, over four times greater than the top global CBD office average of 1.5%.
• Lower Vacancy: Manhattan office properties have an average vacancy rate of 8.8%, 33% lower than the top global CBD office average vacancy rate of 13.2%.
• Room to Push Rents: Manhattan office properties had an average gross rent of $73 per square foot in 2012, almost 22% less than the top global CBD average gross rent of $94.
• Superior Transaction Volume, which Leads to Increased Liquidity: Out of every major city in the world, New York attracted the second highest direct investment in 2012, with $22.5 billion of completed transactions, second only to London, and $10 billion more than any other city in the United States.
Michaels says that other key factors that attract international capital into Manhattan is a solid local economic and politically stable environment, high barriers-to-entry and the fact that New York continues to be the number one international city for tourists, retailers and financial services firms.
The broker the dynamic is being seen by recent trades at Olympic Tower at 641 5th Avenue, the Sony Building at 550 Madison Avenue and the minority interest sale at the General Motors Building at 767 5th Avenue, which is causing real estate values to trade between $1,300 and $2,000 per square foot.
Michaels further argues that this dynamic has continued since 2011, as the U.S. economy climbed out of the precipice created by the Lehman debacle and overall credit crunch.
Notwithstanding, the Eurozone and certain parts of the Middle East, fueled by the Arab Spring, have continued to cause investors to worry, contributing to the appeal of prime New York real estate.
Recent high-profile Manhattan transactions completed by The Carlton Group include the $400 million investment sale at 701 Seventh Avenue and a $400 million first mortgage construction closing at 432 Park Avenue.
Carlton also made a big loan on the Chatsworth Apartments acquisition by HFZ Capital and BSG Real Estate.