Most New York CRE Executives Think Values Have Peaked

Most New York City commercial real estate executives–62 percent–believe the city’s property values have peaked, up from 48 percent three months ago, reported Marks Paneth LLP, New York.

Just 31 percent believe values will rise in the next 12 months versus 43 percent three months earlier, Marks Paneth’s Gotham Commercial Real Estate Monitor said.

But more executives now believe values will hold steady, 44 percent, compared to 31 percent three months earlier, said William Jennings, Partner-in-Charge of Marks Paneth’s Real Estate Group. “Despite peak value concerns, the strength of Manhattan’s underlying economy and the robust demand for properties are enough to inspire optimism in the majority of New York City commercial real estate professionals,” he said.

While a majority of respondents (64 percent) called themselves “optimistic” about the prospects for New York commercial real estate for the next year, an even larger majority–84 percent–deemed the market overvalued compared to other major cities around the globe.

Marks Paneth asked the executives about potential effects of a 1 percent to 2 percent interest rate increase. Nearly half said it would have a “negligible impact” on New York CRE. Only 11 percent said the rate increase would cause a “major negative” effect.

“One factor that is likely to minimize the negative effect of rate increases is the number of foreign buyers in the New York City market,” Jennings said. “Many of these buyers are more concerned about finding a safe haven for their investments than they are with maximizing yield.”

Jennings noted that any interest rate change repercussions will depend as much on timing as on size. “[Federal Reserve Chair Janet] Yellen’s slow-but-sure approach to raising interest rates has likely gone a long way to reassure investors,” he said.

Global stock market volatility directly affects New York real estate, Jennings said. More than half of the executives surveyed said stock market volatility negatively affects New York CRE. But nearly 30 percent called frothy markets good for New York because the city offers investment stability.

“One of the effects of volatility in the financial market is diversification into other asset classes such as real estate, but there are other factors to consider as well,” Jennings said, noting that the recent downturn in China’s stock markets increased capital flight from China, much of which went into New York’s residential market. “Likewise, plummeting oil prices are likely to shift demand from luxury condos to income-producing commercial properties among wealthy buyers from oil-producing countries,” he said.

Arial Property Advisors, New York, noted that the city’s multifamily sector defied a pessimistic economic environment during the first quarter as total dollar volume held steady year-over-year and–after excluding the $5.45 billion Stuyvesant Town & Peter Cooper Village transaction–rose significantly from fourth-quarter figures.

“First quarter figures reaffirm our position that New York City multifamily assets are poised to have another great year in 2016,” said Ariel Property Advisors Shimon Shkury. “Recent contract signings and aggressive bidding activity suggest that investors believe in the continued persistence of today’s low-inflation, low-interest-rate environment.”