The Strongest Investment Sales Market in 31 Years?
Robert Knakal Feb. 4, 2015, 10:01 a.m.
As we look back on last year’s New York City investment sales market, one sentence sums it up well: 2014 was simply the strongest investment sales market that I have seen in the 31 years I have been brokering.
Was it the all-time highest in terms of actual dollars? No, not quite. But that year (2007) came right before a big fall. This time, the market is truly strong and not propped up by inherent weakness. Demand for investment properties was extraordinary all year and sellers, unable to resist record values in every corner of the city, increased the available supply. Even with this increasing supply, demand stepped up to absorb it. This dynamic led to some eye-popping numbers.
The dollar volume of sales in 2014 was $55.8 billion, up 45 percent from the $38.4 billion that occurred in 2013. This total was not an all-time record and missed our projection of $60 billion but was still extremely encouraging with each quarter showing at least a $13.8 billion total.
The dollar volume of sales has been on a rollercoaster ride through this past cycle. The all-time high occurred in 2007 at $62.2 billion. This total dropped by 91 percent to $6.2 billion in 2009. Slowly, but steadily, the market has been rebounding and we anticipate that the total dollar volume of sales will continue to surge in 2015.
With regard to the dollar volume of sales, four of the five submarkets in the city hit all-time record levels. Northern Manhattan dollar volume rose to $2.9 billion, a 46 percent increase over 2013 and a new record. In the Queens submarket, dollar volume rose to $3.6 billion, 52 percent over the 2013 total. In the Bronx, dollar volume was $2.2 billion, up 54 percent from last year and in Brooklyn, there was a whopping $6.4 billion of sale activity, up 67 percent from last year. All three of these totals were also all-time records. In the Manhattan submarket, total dollar volume was $40.6 billion and, while not an all-time record (it was below the $42.2 billion in 2007), this total was still 41 percent above the $28.7 billion that was recorded in 2013.
More indicative of the actual activity in the marketplace is the number of properties sold. In 2014, the number of properties sold hit a new all-time high of 5,197. This eclipsed the previous high of 5,018 sold in 2007 by 4 percent. The 5,197 properties sold in 2014 reflected a 32 percent increase over the 3,930 total in 2013. This record high would appear to be the natural peak of this cycle.
With regard to the number of buildings sold, two submarkets hit all-time highs. The first was Northern Manhattan in which there were 458 properties sold, up 12 percent from the 409 that sold in 2013. Not surprisingly, the Brooklyn market also surged with 2,010 properties sold, up 33 percent from the 1,513 sold in 2013. This total exceeded the previous record of 1,916, set in 2006, by 5 percent. The other submarkets showed significant gains over 2013 totals: Manhattan by 21 percent, the Bronx by 46 percent and Queens by 46 percent. However, totals in these three submarkets did not exceed the all-time highs previously established in either 2006 or 2007.
So, where are these metrics headed? The dollar volume was just shy of an all-time high and the number of properties sold reached a record total of 5,197. Based upon this extraordinary total, we expect that in 2015 the number of properties sold will drop. Over the long term, the average turnover ratio is much lower and history shows us that much activity reverts to the average. This is why we feel the number of properties sold will drop.
However, counterintuitively, we expect the dollar volume of sales to rise to $65 to $70 billion in 2015, establishing a new record.
The two main reasons for this? The tremendous growth that is anticipated in the CMBS market will allow for very large transactions to occur at a very rapid pace and the continued upward pressure on property values.
In 2014, citywide property values appreciated by 20 percent on average. In the Manhattan submarket, the appreciation rate was a whopping 34 percent. It is anticipated that we will have double-digit increases in property values again this year based on the overwhelming demand that exists for New York City investment properties.
2015 should be another great year for the city’s investment sales market.
Mr. Knakal is the chairman of New York Investment Sales for Cushman & Wakefield and has brokered the sale of approximately 1,700 properties in his career having a market value in excess of $12.5 billion.