Manhattan Market Report

Sevenfold Retail Sales Volume Catapults $13 Billion Q4: Eastern Consolidated

An unprecedented sevenfold increase in retail property sales fueled the Manhattan commercial real estate sales market’s epic comeback in the fourth quarter – its strongest performance since 2007, according to preliminary data from Eastern Consolidated.

The hallmark quarter, with nearly $13 billion in sales volume – the strongest since record-breaking performances in 2007 (peaking at $19 billion in Q2 of 2007) – was triggered by fears of impending capital gains taxes, which had owners scrambling to unload properties before year’s end.

“This was definitely fiscal-driven growth,” said Barbara Byrne Denham, Eastern Consolidated’s chief economist.  “Sellers wanted to cash out and buyers knew it, so they were eager to come to the table as well.”

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Vornado’s $707.8 million purchase of the retail condominium at 666 Fifth Avenue topped all retail sales

A sneak peak at the firm’s Manhattan Economic Indicators report obtained by The Commercial Observer shows that total sales volume more than doubled from Q3 to Q4, from $5.9 billion to $12.5 billion (Ms. Denham said the number will likely top out at $13 billion).

Sales volume in retail jumped a whopping 729 percent, from $285 million to $2.4 billion, with Vornado’s $707.8 million purchase of the retail condominium at 666 Fifth Avenue topping the list.  The remarkable performance was something of an anomaly and not wholly attributable to capital gains, given that many of those deals were negotiated during Q3, Ms. Denham said.

“It was a confluence of events,” she said, citing the tremendous momentum in tourism and high-end retail in New York, as well as demographic shifts towards wealthier residents and higher rents in main retail corridors.

Office market sales volume lagged all other major property types, despite the preliminary data showing a substantial 53 percent gain, from $2.5 billion to $3.9 billion.  New York Life’s pickup at 575 Lexington Avenue for $360 million and Jamestown’s $295 million acquisition of 450 West 15th Street were among the top office deals.

In perhaps a sign of what’s to come, land/development and hotel sales nearly doubled between Q3 and Q4, suggesting a boom in development and perhaps a repositioning of the city’s hotels on the heels of another record-breaking tourism year with 52 million visitors.

The biggest land sale occurred at 701 Seventh Avenue, where the Witkoff Group and New Valley picked up the 36-story, mixed-use development project for $240 million, helping pave the way the sector’s $1.5 billion Q4 performance.

“The demand to build is always there,” Ms. Denham said.  “It’s a solid sign that a lot of investors believe in the ongoing success of New York City.”

The Manhattan at Times Square Hotel, scooped up by Rockpoint Group and Goldman Sachs for a hefty $275 million, led the way among hotels, which netted a total $666 million in Q4 sales.

The hike in capital gains taxes authorized by congress – from 15 percent to 23.8 percent (including the 3.8 percent “net investment income” tax) – corroborates the jitters felt by owners last quarter and in retrospect supports their decisions to in some cases hastily unload properties.

With the election, fiscal cliff, debt ceiling and European debt crisis in the rear view mirror, or at least receding into the horizon, the industry will hope that the mad scramble in Q4 doesn’t lead to a less exciting – if not depressed – performance in the first quarter of 2013.  Ms. Denham said she expects the number to dip back into the $5 billion to $6 billion range seen during the rest of 2012.

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