Avison Young: Manhattan CRE Softens

Manhattan offices saw a “soft” second quarter as office leasing velocity fell 32 percent year-over-year, reported Avison Young, Toronto.

The firm’s Second Quarter New York Market Report said office occupiers signed leases for just 5.0 million square feet of space during the quarter. But due to a stronger first quarter performance, first-half volume is down just 14 percent year-over-year.

The Manhattan investment sales market saw a slight uptick from the prior period, the report said. It noted increased foreign capital is “redefining” the city’s buyer pool–especially for prominent properties. “Chinese capital has accounted for half of the total dollars invested since the beginning of 2017, which has helped buoy market volume and pricing,” the report said. “Despite the shifting market conditions on the horizon, the pendulum of investor sentiment is swinging toward optimism.”

Avison Young said the number of properties changing hands is the best way to gauge the market activity. Using this metric, Manhattan averaged 141 transactions per quarter from third-quarter 2013 through second-quarter 2016 and never recorded less than 112. In the most recent four quarters the average transaction count dropped to 71. It fell to 66 in the second quarter.

As first-half 2017 wrapped up, the annualized forecast for total transaction volume was on pace to be 40 percent lower than 2016 and 60 percent lower than 2015, Avison Young said. “At the current pace, 2017 is shaping up to have the lowest sales count since the period from 2008 to 2010, the last market trough,” the report said.

Dollar volumes tell a similar story, Avison Young noted. “The dearth of recent activity has impacted several of the predominant market statistics,” the report said. “Multifamily properties have historically accounted for approximately one-third of the total transactions of a given quarter while in 2017 that percentage has grown to more than half.”

Office trades typically account for nearly half of Manhattan dollar volume; that measure increased to more than three quarters of dollar volume this year. “At a time where there is uncertainty amongst the pool of incumbent investors, foreign capital sources are increasing their exposure to New York City real estate and adding more complexity and diversity to an expanding marketplace,” the report said. “The upside to this expansion is the growth in the number of investors participating in the New York City real estate market, as well as the degree of future price competition as the market begins to accelerate.”