FAE Speaker: NYC Real Estate Market Leveling Off as Part of Natural Market Cycle

Chris Gaetano
Published Date:
Dec 15, 2016
By Taken by Shmuel Spiegelman using a Canon 10D. - Own work, CC BY-SA 1.0

New York City's once white-hot real estate market is cooling off since reaching a peak two years ago, with office, retail and residential markets all hitting a wall in terms of units sold, according to Robert Knakal, chair of New York investment sales with the firm Cushman and Wakefield and a speaker at the FAE's Real Estate Conference today.

Knakal, giving a general overview of the market, pointed to some key statistics. Despite New York City creating more than 7,000 new jobs in the past six years, Knakal said that the number of office buildings sold in Manhattan has dropped 40 percent and volume in dollar terms has dropped 23 percent since last year. Value, however, is up 120 percent, Knakal saying the average building is now selling for almost $1,150 per square foot. So, despite these dips, he said that office properties are doing, in his words, "surprisingly well."

Retail is facing a similar situation. There's been a 24 percent reduction in the number of retail properties sold, but the price per square foot has increased by 25 percent over the last year. While he noted that this price is still 3 percent lower than 2014, he said that year's data was skewed by a highly priced retail condo space sold that year for $30,000 per square foot.

"Think about this. Soon we'll have to be doing these values in dollar per square inch they're getting so high," he said.

He said contraction in retail property sales mirrors the headwinds faced by the retail sector in general: There's not a lot of new retail tenants coming into the market, he said, and existing tenants are looking to reduce their physical footprint because more and more of the industry is going online.

Multi-family units, too, are seeing similar slowdowns. Knackal said that (excluding the recent sale of Stuyvesant Town-Peter Cooper Village which he said skews the statistical data) the number of properties sold is down 18 percent from last year, with a 19 percent decrease in dollar volume. Prices per square foot for the sector has increased by 4 percent and the average capitalization rate is compressed by 14 basis points, though he said the rate of compression is declining.

Despite these downturns, Knackal did not think they were any sort of dire portend, saying what we're seeing is a natural market correction that happens every few years.

"Nothing has happened. There has not been a cataclysmic event to make the market turn. We haven't had a housing market crash, we haven't had a stock market burst, we haven't had a credit crisis. There's no event to make the market turn. The reason it's turning is the market is cyclical. No one said it isn't. We're in a natural cyclical market and because of that if values goes down it won't go down by much, it will contract but be somewhat muted. Unless something else happens that impacts things," he said.

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