Has the Manhattan Submarket Peaked? Not Even Close!
Last week, in this column, I wrote about the overall investment sales market in New York City and its performance thus far through the first quarter of 2015. It appears that, on a citywide basis, the market has picked up right where it left off in 2014, which is remarkable given the epic year that last year was.
To recap, in 2014 there were $57.7 billion of investment sales citywide. This total was not quite the record of $62.2 billion seen in 2007 but still represented a 50 percent increase over the $38.4 billion which occurred in 2013. In terms of number of properties sold, the 2014 total reached an all-time record by a wide margin. There were 5,532 properties sold last year, eclipsing the 5,018 sold in 2007 by more than 10 percent.
On top of this record sales volume, property values also appreciated robustly. Citywide property values rose approximately 20 percent over 2013 levels. Capitalizations rates fell to an average below 5 percent for the first time ever at 4.8 percent. Additionally, land values soared to a citywide average of $250 per buildable square foot, the first time the citywide average had ever reached this lofty level.
Coming off this unprecedented traction in the market, many market participants felt that 2014 must have represented a market peak. However, in 1Q15, the market continued its upward trajectory. The number of properties sold did decrease to an annualized level of 4,936 trades, not a record but still a very healthy pace. The record came in the form of dollar volume, which hit an all-time quarterly record of $20.8 billion. On top of this, property values continued to climb (by 4 percent) and land values continued their ascent. They rose 19 percent in the first quarter alone.
We always like to look at the Manhattan submarket particularly since it historically has been a leading indicator of the direction of the market in the entire city. For the purposes of this analysis, we consider this submarket to be Manhattan south of 96th Street on the East Side and south of 110th Street on the West Side.
In 1Q15, dollar volume in the Manhattan submarket was $16.8 billion. This is the second highest quarterly total ever, just below the $17.2 billion in 1Q07. However, this is misleading. If we annualize this total, the resulting $67.4 billion would set a new record for the submarket, outperforming the $52.5 billion total in 2007 by a whopping 28 percent. Mega-deals helped boost this total with billion-dollar trades like Three Bryant Park ($2.2 billion), the Waldorf-Astoria ($1.95 billion) and 605 Third/1345 Avenue of the Americas ($1.225 billion). Other large sales in 1Q15 included the sale of an interest in 11 Times Square ($630 million), 225 West 86th Street ($575 million) and 790 Seventh Avenue ($535 million).
With regard to the number of properties sold, 316 properties traded hands in 1Q15. This was also not a quarterly record as the activity in 4Q12 was significantly impacted by the threat of potential increases in capital gains taxes (which did indeed come to pass). In that quarter 409 properties were sold. However, just like with dollar volume, if we annualize this total, the Manhattan submarket is on pace for a record 1,264 sales. This would top the 2012 record of 1,200.
Property values in the Manhattan submarket were off the charts in 2014. The average price per square foot of properties sold in the core property sectors hit a new all-time record of $1,444 per square foot. This average reflected a 37 percent increase over the $1,051 average in 2013. Thus far in 2015, the average has actually dropped to $1,390 per square foot. Does this mean the market is losing steam? Not at all. The robust activity at the high end in the retail property sector was a significant contributor to the 2014 average with several transactions occurring at prices in excess of $15,000 per square foot. The highest price per square foot in this sector in 2015 has been just over $6,000. If we strip retail properties out of the analysis, we see the 2014 average drop to $980 per square foot and the 1Q15 average at $1,149, a 17 percent increase.
The Manhattan submarket is clearly on pace for a fantastic result in 2015, which if history provides any insight bodes well for the investment sales market in the entire city this year.