The investment sales market citywide is about as good as it could be. Values are soaring, and the volume of sales is approaching, or ahead of, 2007 peak levels, both in dollar volume and the number of properties sold. The dollar volume of sales in the first quarter of 2014 (1Q14) hit $13.3 billion. This figure represents the best first quarter of activity going back to the $20 billion achieved in the first quarter of 2007. If we annualize the $13.3 billion of activity, we are on pace for $53.1 billion of sales activity for the year.
This total represents a 39 percent increase from the $38.3 billion last year. It also is approaching the all-time record achieved in 2007 of $62.2 billion.
With regard to the number of properties sold, 1Q14 represented a record pace, with 1,255 properties trading hands. If annualized, 2014 is on pace for 5,020 properties selling, which would establish a new record and narrowly eclipse the 2007 total of 5,018 properties sold.
So the similarities between 2014 and 2007 seem clear. However, one noticeable difference is the relative strength of the submarkets outside of core Manhattan this time around.
If we look at the submarkets of northern Manhattan (defined as north of 96th Street on the east side and north of 110th Street on the west side), Queens, Brooklyn and the Bronx, we see that the attractiveness of these locations relative to Manhattan below 96th Street have gained tremendous allure from the investment community. Market statistics certainly support this observation.
In the first quarter of 2014, there was approximately $3.65 billion of investment sales activity. If annualized, these submarkets will see $14.6 billion of sales activity, blowing away the previous record of $9.7 billion achieved in 2007 (and 2012) by a whopping 51 percent.
In 1Q14, the number of properties sold in these submarkets was 1,026, the highest quarterly total going back to 2007. If annualized, 4,104 properties will change hands this year, establishing a new record by surpassing the previous record of 4,059 properties sold in 2006.
These submarkets are attracting new money from institutional investors and foreign buyers, which are playing a much larger role in this cycle than they did in the last one. This is one of the many reasons for the relative strength of the outer boroughs recently. Consequently, the average price of a property sold outside of the Manhattan submarket, currently at about $3.5 million, is 50 percent higher in 2014 than it was in 2007.
Values also achieved record levels in 1Q14, as the average price per square foot appreciated by 3.6 percent, on a quarter-over-quarter basis, to a new all-time high of $279. Compared to 1Q13, this average is up 22 percent.
In Queens, the dollar volume in 1Q14 was $830 million. If annualized, the resultant $3.3 billion would set a new record, surpassing the previous high of $2.6 billion achieved in 2006 by 28 percent. In the quarter, 274 properties were sold, which fell just shy of 1Q06’s 1,191. Interestingly, 20 percent of all property sales in Queens were development properties, another new high for the submarket.
In Brooklyn, there was $1.7 billion of sales volume in 1Q14, the highest quarterly total ever in the borough. If annualized, the $6.7 billion total would surpass the previous record of $3.84 billion, achieved in 2007, by 74 percent. With 492 properties changing hands in 1Q14, this submarket is on pace for another all-time record. If annualized, the 1,968 sales would exceed 2006’s 1,916 by 3 percent. The largest sale of the first quarter was 470 Vanderbilt Avenue, which was purchased by RXR, a historically Manhattan-focused investor.
The biggest submarket surprise of 1Q14 was the Bronx. With $804 million of sales (the second highest quarterly total ever behind 1Q07), the borough is on pace for $3.2 billion this year, which would be an all-time record and surpass 2007’s total by 47 percent. The 184 properties sold in 1Q14 puts the borough on pace for 736 for the year, another all-time record.
The most disappointing submarket in terms of sales volume was northern Manhattan, in which there was $341 million of sales in 1Q14. If annualized, the resulting $1.36 billion would be one-third less than last year’s total. Seventy-six properties traded hands here, a pace that would result in about 26 percent fewer sales than in 2013. The silver lining here is that values grew at the highest rate of appreciation of all non-Manhattan submarkets, with an average price per square foot 17 percent higher than seen in 2013.
Without a doubt, a tangible shift is occurring in these submarkets, and we anticipate that this trend will continue into the foreseeable future.
