Two weeks ago in this column, I wrote about the overall New York City investment sales market’s performance in 2013. Last week, we took an in-depth look at the Manhattan submarket, and this week we will review the performance of each of New York’s submarkets outside of Manhattan. For the purposes of this analysis, we consider the Manhattan submarket to consist of sales south of 96th Street on the east side and south of 110th Street on the west side.
Before we dive into these submarkets, let’s review the overall market performance citywide last year. The numbers showed that while volume was good, it could not quite get back to the totals seen in 2012. The dollar volume totaled $37.6 billion, down 9 percent from 2012’s $41.2 billion. And the number of properties sold dropped 8 percent, from 4,077 in 2012 to 3,767 last year. This result was not unexpected as the 2012 strong pace of sales was materially affected by capital gains tax policy, which accelerated some activity. The good news was that, on average, property values in the city increased by 13.4 percent on a price per square foot basis in 2013.
The surprisingly strong overall performance (relative to expectations) was not led by Manhattan as it normally is. The Manhattan submarket experienced a 10 percent drop in dollar volume (the second worst to Brooklyn) and a 34 percent reduction in the number of properties sold, by far the worst in the city. Therefore, the overall strength of the city’s performance can be linked directly to healthy performance in the submarkets outside of Manhattan.
The submarket that, by far and away, blew away all others in 2013 was northern Manhattan. It had the largest increase in terms of percentage growth of number of buildings sold over 2012. In 2013, there were 400 properties sold in the submarket, at 22 percent increase over the 328 sales the year before. More impressively, the dollar volume of sales skyrocketed to $2.0 billion, an 80 percent increase over 2012 and a 36 percent increase over the submarket’s all-time record of $1.47 billion in 2007. The strength of the multifamily market had a lot to do with this performance as several large portfolios were traded, particularly in the second half of the year. Value also increased handsomely in this submarket on account of strong cap rate compression since the market’s bottom in 2010 when cap rates averaged 7.0 percent; 40 and 60 basis point drops were observed in 2011 and 2102 successively, to be followed by a 70 basis point drop last year, bringing the average down to 5.3 percent, the lowest outside of Manhattan. On a price-per-square-foot basis, properties in northern Manhattan rose from an average of $265 in 2012 to $299 last year, a 12.8 percent annual increase.
In 2013, the Queens submarket also showed very strong performance. Last year, there was a total dollar volume in the submarket of $2.25 billion, just $20 million shy of 2012’s $2.27 billion total, a 1 percent drop. Queens had 750 properties change hands last year, 110 more than the 640 that sold in 2012, a 17 percent increase. Other than northern Manhattan, Queens was the only submarket in which the number of properties sold in 2013 was higher than it was in 2012. With regard to value, the Queens submarket saw the average price per square foot climb from $262 in 2012 to $296 last year, a 12.8 percent gain. Queens did not miss out on the wild run-up in land prices last year, as the submarket’s average price per buildable square foot rose from $88 to $119, a 35 percent increase.
In the Bronx last year, there were 385 properties sold, a 13 percent drop from the 440 sold the year before. The dollar volume in the Bronx totaled $1.35 billion, down 7 percent from the $1.45 billion in 2012. The difference in these percentages demonstrates that the trend last year of a larger average transaction size took place in the Bronx as well. Average prices per square foot increased nicely in this submarket, with 2012’s $166 rising by 12.8 percent to $187 last year. This average was, by far, the lowest in the city.
Finally, the 2013 statistics for Brooklyn are probably the most misleading. The number of properties sold came in at 1,443, down just 2 percent from the 1,469 in 2012. However, the dollar volume of sales dropped by about 25 percent (more than any other submarket) from $4.83 billion in 2012 to $3.62 billion last year. The reason these numbers are so misleading is that in 2012 a few mega sales boosted the submarket’s dollar volume to an all-time record, eclipsing the previous high achieved in 2007 by nearly $1 billion. The average price per square foot for properties sold rose by 13 percent to $324, second only to Manhattan. Increasingly, Brooklyn has been the submarket benefiting from the tremendous appreciation Manhattan is experiencing. In some cases, property values are approaching Manhattan levels. We expect this trend to continue.