Checking in Before the Dog Days
The good folks at Commercial Observer are nice enough to give me a writing break each August. Therefore, this will be my last column until after Labor Day. The first half of the year has been extremely eventful and the balance of the year is poised to round out what is likely to be a record-breaking 2014.
Today, I wanted to leave you with a recap of the Manhattan investment sales market so far this year and what we will be watching for over the rest of the summer and into the fall.
Before we look at 1H14 Manhattan results, we should recap how the market has performed citywide. The dollar volume of sales in 1H14 was $27.4 billion. If we annualize this performance, the market is on pace for about $54.8 billion for the year. This would be the second-highest annual total ever, about 12 percent lower than the $62.2 billion of sales in 2007. However, given that the first half of any year generally shows lower activity than second halves, we anticipate the annual total to eclipse the 2007 record.
In terms of number of properties sold, in 1H14 there were 2,643 properties sold. If annualized, this is on pace for 5,286 sales, approximately 5 percent higher than the previous record in 2007 of 5,018.
Manhattan is generally the submarket that is a leading indicator of more macro. For the purposes of this analysis, the Manhattan submarket is considered to be south of 96th Street on the east side and south of 110th Street on the west side. In 2Q14, the dollar volume of sales was $10.4 billion, up from $9.9 billion in the first quarter. This brings the first half total to $20.3 billion, on pace for $40.7 billion for the year. This total would be about 22 percent lower than 2007’s $52.5 billion. On a relative basis, the Manhattan submarket is not performing as well as the market citywide, which is only off record pace by 12 percent.
Where are we headed? Over the next few months, we will be watching the rate of increase in values versus the rate of improvement in underlying fundamentals. So far this year, the pace of value increases has greatly exceeded improvements in fundamentals. This disconnect must be reconciled either with the pace of fundamentals increasing at a more rapid rate or the pace of appreciation tapering.
We will continue to monitor overseas markets, both from economic and political perspectives. Some market observers feel that the instability overseas is a threat to our domestic sales market. I believe it is just the opposite. Turmoil around the globe has been the catalyst for more foreign investment pouring into the U.S. than any other factor as investors increasingly look for safe havens for capital.
Potential interest rate increases could derail the euphoric market, but the government has every possible incentive to keep rates low to the extent they can. From a policy perspective, nothing substantial is likely to happen prior to the midterm elections. So we should be safe at least until the end of the year. (The rhetoric of the candidates leading up to the midterms could be meaningful.)
Some folks are still talking about the massive amount of debt maturing over the next two or three years as a possible risk to the market. Given value increases and the amount of capital poised to come into the market, we don’t see this as a present risk.
Right now, the property sales market in New York is about as good as it can get. How long it stays this way is a question on everyone’s mind. How some of these metrics perform will determine how long this magnificent run lasts. See you after Labor Day.