Manhattan Investment Sales and the Lessons of the Two V’s
Participants in New York’s commercial real estate market typically look at the Manhattan market as an indicator of shifts within the investment sales area. Manhattan has historically been the submarket that leads citywide recoveries out of downturns and it appears, in this cycle, this will be the case once again.
In 2010, there was approximately $12 billion in investment sales activity in the Manhattan submarket, up approximately 187 percent from the $4.2 billion of sales in 2009. While last year’s dollar volume represented a significant, and welcome, increase, the $12 billion in sales remains 77 percent below the $52.5 billion in sales in 2007, and represents less than 50 percent of the $24.5 billion in sales attained in 2005. (For the purposes of our analysis, we consider the Manhattan submarket to include all properties south of 96th Street on the East Side and south of 110th Street on the West Side.)
Interestingly, while the dollar volume of sales nearly tripled in 2010, the number of buildings sold revealed a much smaller yet impressive increase over 2009 totals. In 2010, there were 473 buildings sold, a 47 percent increase over the 322 sold in 2009. While this increase created a positive psychology within the market, the 473 buildings sold was still 53 percent below the 999 buildings sold in 2007, and well below the 860 sold back in 2005.
The significant increases in the dollar volume of sales and the number of buildings sold have been very positive for the marketplace. In conjunction with these, we’ve seen the average price of a property sold in Manhattan nearly double, from $12.9 million in 2009 to $25.3 million in 2010. The 2010 average was slightly less than half of the $52.5 million average in 2007, and was only slightly below the $28.5 million average in 2005. Not surprisingly, the $25.3 million average transaction size in 2010 is nearly four times the citywide average of just $7.2 million.
AS YOU KNOW, if you are a frequent reader of Concrete Thoughts, we tend to focus more on the number of properties sold as opposed to the dollar volume of sales, as a few very highly priced transactions can skew this metric significantly. In 2010, the 473 buildings sold in Manhattan represented approximately 28 percent of the 1,667 properties sold citywide. Contrastingly, the $12 billion in sales represented approximately 83 percent of the $14.5 billion in the dollar volume of sales citywide. Clearly, the largest transactions in the city are concentrated in the Manhattan submarket. In fact, of the 1,667 properties sold citywide, there were 49 that traded for prices in excess of $50 million. All but two of these properties were located in Manhattan.
The 473 properties sold in Manhattan in 2010 represented a turnover ratio of approximately 1.7 percent of the total stock of 27,649 buildings in the submarket. If we look at historical figures in the Manhattan submarket, we see that the average turnover ratio, going back to 1984, is 2.6 percent of the total stock of the market. Prior to 2009, the lowest turnover ratio that we had ever seen was 1.6 percent in 1998 and in 2003. These were both years at the end of recessionary periods and were also both years in which we hit peaks in cyclical unemployment. In 2009, volume dropped to what we believe is an all-time low of 1.17 percent. (We are currently researching 1975 and 1976, when the city almost went bankrupt, to determine sales volume during that period.)