By Michael Gembecki, Director, New York Middle Market Investment Sales
The overall Manhattan Investment Sales market experienced healthy production in 2018 and remains above historical annual averages for number of transactions and dollar volume. The office sector had a banner year as high-profile companies solidified their business operations in the borough. Despite the historically strong volume in the office asset class, decreases in price per square foot and rising CAP rates in the overall market have become relevant trends as it adjusts from peak pricing. Despite these headwinds, NYC is and will remain the global epicenter for employment and tourism opportunity.
Manhattan’s middle market investment sales (properties below $75M) experienced healthy transactional volume and sliding values in 2018. Year-over-year, the number of transactions increased by 3% from 589 to 607 compared to dollar volume which yielded a 1% increase from $7.1B to $7.2B, both of which exceeded their historical averages. Price per square foot was down 17% from $1,419/sf to $1,175/sf and price per buildable square foot was up 9% from $558/bsf to $608/bsf. CAP rates are up to 4.26% from 3.86% year-over-year and are at the highest level since 2013.
The Chelsea investment sales submarket recorded 26 transactions over the course of 2018, an increase of 4% over the 25 transactions in 2017. The aggregate sales consideration in Chelsea also increased by $1.9B from 2017 and closed at a value of $3.19B by 4Q2018. Driven by Google’s purchase of the Chelsea Market, dollar volume was recorded at $3.19B for 2018, which made up approximately 75% of the total dollar volume. If excluded, dollar volume was down 38% YoY. Moreover, the submarket realized a tangible shift in the product type that has traded. 2017 was driven by the development market which attributed to 10 of the 25 transactions whereas in 2018, there were only two development site transactions. In 2018, the office/office condo segment drove the market attributing 7 transactions, or 27%, of the submarket.
Reflecting on 2018, while looking ahead in 2019, the following are our “fast facts” that continue to shape the investment sales market:
- Transaction and dollar volume surge as property values slide.
- Millennials are driving the ship, and now account for 30% of NYC’s population. This is the second highest share per city in the US.
- Fortune 100 companies, including the largest and most profitable financial services, technology, pharmaceutical and media companies in the world, inked large NYC office deals in 2018.
- Venture capital funding increases 46% increase since 2015-2016 and sets two-year record highs at $25.6B for the New York metropolitan area.
- Flat residential rents, decreases in retail rents, increased financing, utility, and labor costs, a cumbersome regulatory environment, and political uncertainty are weighing concerns on the market.
- 2019 predictions:
- Creation of boutique office to compliment institutional supply will drive the middle market.
- Residential product will lag due to increased rent regulation from Albany, and therefore, create increased demand for free market assets.
- Brand-backed customer experiences will emerge and resurrect retail from the rubble.
Michael Gembecki is a Director in the New York Middle Markets Investment Sales Group of Cushman & Wakefield, focusing on Chelsea, East Village, Greenwich Village, West Village, and NoHo. To date, Michael has been involved in the sale of properties with an aggregate value of over $620 million. Previously, he was a Senior Associate at Massey Knakal Realty Services, which was acquired by Cushman & Wakefield on December 31, 2014.