Investment Sales Submarket by Submarket
Last week, I wrote about how the investment sales market is performing on a citywide basis (2015 will undoubtedly set a new all-time record), but if we disaggregate the citywide information, here is what is happening in each geographic submarket.
Manhattan: South of 110th Street on the West Side and south of 96th Street on the East Side there has been $42.1 billion in sales in 1-3Q15, which, if annualized, is on pace for $56.17 billion. Notably, the $42.13 total already eclipses last year’s annual total. The present pace, if realized, would be 33.4 percent above 2014, and would establish a new all-time record by 6.9 percent over 2007’s $52.5 billion. Eight hundred and eleven properties have traded hands in Manhattan thus far in 2015, which is on pace for 1,081 for the year, 6.4 percent above last year’s 1,016, but will fall short of 2012’s record of 1,200 properties sold.
The average transaction size here jumped from $41.5 million last year to $52 million this year, a 25.3 percent increase. This average falls slightly short of Manhattan’s record of $52.5 million established in 2007.
Values in Manhattan are down 4.5 percent this year due to some extraordinary retail property sales that occurred last year, which greatly skew these numbers. Evidence of this is the fact that cap rates are down 15 basis points from last year, averaging 3.82 percent. Since the bottom of the market in 2010, cap rates in Manhattan have compressed by 210 basis points from a peak of 5.93 percent.
Northern Manhattan: The hottest of all submarkets in 2013 and 2014 by most measurable metrics is taking its lumps in the volume department this year. Dollar volume is on pace for $2.3 billion in 2015, which would be 24.4 percent below last year’s $3.1 billion. This is the only submarket exhibiting a decline in dollar volume. The number of properties sold is on pace for 389 sales, 19.4 percent below 2014’s 483 trades. The volume metrics point toward an average transaction size of $5.96 million, the highest average outside of Manhattan, however, it is down 6.3 percent from last year’s $6.36 million.
Values here are performing very well. The average price per square foot has climbed from $329 last year, to $381 this year, a 15.8 percent increase. Cap rates have dropped 70 basis points, to an average of 4.31 percent from 2014 to 2015, and have compressed by a whopping 270 basis points from the trough of the market in 2010 when the average cap rate was 7.01 percent.
The Bronx: The dollar volume of sales is on pace for $2.52 billion this year, which, if achieved, would be 12 percent above 2014’s $2.25 billion total and would establish a new record for this submarket. The number of properties sold in 1-3Q15 has been 517—on pace for 689 sales this year—which would be 9.9 percent above 2014’s total of 627. The all-time record for the Bronx was 701 properties sold in 2007.
The average transaction size in the Bronx so far this year has been $3.65 million, up just 1.7 percent from last year’s $3.59 million.
Average price per square foot has increased from $160 in 2014 to $186 this year, a 16.2 percent increase, mainly due to cap rate compression, which has come in by 80 basis points this year, down to an average of 6.19 percent from last year’s 6.99 percent average. Since the bottom of the market (2009 in the Bronx), cap rates have compressed by 183 basis points, from a citywide high of 8.03 percent, down to today’s level.
Brooklyn: The dollar volume so far this year of $6.61 billion has almost reached last year’s all-time record of $6.76 billion. This is on pace for a new record of $8.81 billion, up a staggering 30.4 percent from the prior year. The number of properties sold is on pace for 2,094 this year, which would be 3.6 percent below last year’s 2,174 trades.
These metrics have resulted in the largest increase in average transaction value, registering a 35.1 percent rise to $4.2 million from last year’s $3.1 million.
Values have been performing well in Brooklyn also, as average price per square foot has increased from $317 to $353, an 11.4 percent appreciation rate. Cap rates are down 70 basis points on a year-over-year basis and down 235 basis points from the market’s low point in 2009 when rates averaged 7.26 percent.
Queens: The dollar volume of sales in the Queens submarket is on pace for $4.1 billion, 8.8 percent above last year’s all-time record of $3.8 billion. The number of properties sold is tracking at a 1,010 pace, which would be a disappointing 18.1 percent below 2014’s 1,234 sales. The average transaction here has increased $1 million, from $3.05 million last year to $4.05 million presently, a 32.8 percent increase.
The average price per square foot has increased from $302 last year to $350, a 15.9 percent appreciation rate. Cap rate compression has been excellent here: the average cap rate has been 5.26 percent this year, down 92 basis points from last year’s 6.18 percent average. Since the bottom of the market in 2010, when the average cap rate was 7.01 percent, cap rates have compressed by 174 basis points.
Each of the city’s submarkets has been rolling along if we look at what has happened so far this year. However, we have seen some cracks in the 3Q15 results, which have continued into 4Q15 and may impact our projections moving forward. Stay tuned…