Though 2018’s not-for-profit sector activity decreased last year in comparison to 2017, the sector still had a strong year with lease & investment activity in New York City finishing at 9.3 million square feet (msf). Leasing in 2018 was defined by robust activity in the education industry, which accounted for 30.8% of the total sector’s leasing. Like the overall investment sales market in NYC, investment sales in the not-for-profit sector rebounded with total investment sales exceeding 5.0 msf and $2.7B in value—fueled by 13 transactions for 100,000 sf or more with seven above 200,000 sf.
In 2018, the sector leased or renewed nearly 4.3 million square feet (msf) in 2018—down 28.4% from the all-time high of more than 6.0 msf in 2017. This is primarily due to the sector’s preference for value-oriented assets, highlighted by DHU Realty/1199 SEIU’s 521,374-sf renewal at 330 West 42nd Street in Times Square South—the largest not-for-profit lease in 2018. While not-for-profit organizations signed the most leases in 2018 with 49, educational services leased significantly more office space. The education sector leased 1.3 msf of office space in 2018—more than four times the 2017 total—and accounted for nine of the top 20 deals throughout the city. Included in these were Touro College’s three separate new leases or renewals totaling in excess of 150,000 sf and Cornell University’s continued its expansion with three leases for different schools at 570 Lexington Avenue totaling nearly 90,000 sf.
Leasehold condominiums, a transaction structure which allows not-for-profits to be exempt from paying real estate taxes, continues to be a popular option for the sector. This is displayed in two of the preeminent transactions during the past year – Mercy College’s transaction at 2 Herald Square and Community Preservation Corporation’s deal at 220 East 42nd Street.
Manhattan accounted for 83.5% of all not-for-profit and public sector leasing deals in New York City over the year, whereas for investment sales, the sector was most active in Brooklyn with 56 transactions compared to only 41 in Manhattan. The number of investment sales transactions increased by more than 45.0%, from 109 deals in 2017 to 158 in 2018 and dollar volume increased by 54.6% year-over-year to $2.7 billion.
Within the public sector’s sub-categories, not-for-profit organizations were the most active in investment sales market, transacting on 27 deals for $872 million in 2018. Religious institutions continue to produce the largest share of transactional activity in the sector with 50.6% of all activity totaling 80 deals, up from a 36.7% share in 2017. Religious organization dollar volume, however, declined by 8.3% to $473 million in 2018.
As we look ahead to 2019, public sector organizations will strive to remain in Manhattan aside from entities fulfilling program needs in the Outer Boroughs and organizations with budget constraints, who will look for less expensive space with easily accessible public transportation, in areas like Long Island City, Harlem, Downtown Brooklyn, and increasingly in Sunset Park/Industry City. In terms of space, not-for-profit organizations will prioritize limited resources to accommodate more collaborative, modern work environments and to support the maintenance of real estate assets that are outdated.