As I have written about in these pages for several months now, New York City’s investment sales market appears to be about one year into a transition (read: correction). Year-to-date statistics show that the overall market is on pace for a total dip of about 22 percent from last year’s $77.1 billion. The number of properties sold is down 12 percent, and while property values have edged up (to $1,567 per square foot from $1,332) this is largely thanks to two retail condominium sales in Soho which fetched $17,000 per square foot.
The Queens submarket, however, is doing relatively well.
Thus far in 2016, Queens is on pace for approximately $4.9 billion of investment sales transactions. This would be an all-time high for the Queens submarket and a very robust 23 percent above last year’s $3.96 billion total. It is worth noting that the third-quarter 2016 total—which is in excess of $1.5 billion—will be the largest quarterly total ever recorded in the history of the borough. Higher-value properties are selling this year as the total number of properties sold is on pace for 992, just 1 percent ahead of last year’s 984 closed transactions.
With regard to property values, thus far in 2016, the average price per square foot has been $366, 4 percent ahead of last year’s $353 per square foot average. This $366 figure will set a new all-time high for the borough if the pace continues. Capitalization rates are also continuing to compress in Queens. The cyclical peak occurred in 2011 with an average rate of 7.2 percent. Last year, the average was 5.2 percent and, so far this year, the average has been approximately 4.8 percent. But let’s break down the product food groups.
As in all other geographical submarkets, the development market in Queens is also experiencing a pullback. The activity thus far in 2016 puts the market on pace for 81 development transactions, down 27 percent from the 111 development site sales that occurred last year. This figure is also 40 percent below the cyclical high of 135 plots, which were sold in 2014. The dollar volume of development site sales is off by 35 percent this year, on pace for $610 million. This compares unfavorably to the $938 million of such sales in 2015. The price per buildable square foot hit an all-time record for Queens in 2015 at an average of $188 per buildable square foot. This year, the average is $174 per buildable square foot, a 7 percent reduction.
Office building sales in Queens show volatility in terms of the statistics because it is not a high-volume market. This year’s activity is on pace for 32 office building transactions, up 28 percent from the 25 office buildings that sold last year. This total, however, is about 11 percent below the 36 office transactions (a cyclical peak) that occurred in 2014. Dollar volume of sales in the office sector here is on pace for $172 million, a 33 percent increase over the $129 million of volume that occurred in 2015. The $172 million total would, however, be about 75 percent below the all-time record of $700 million set in 2012. The average price per square foot has climbed to $366, an all-time record, and 5 percent above last year’s $349 average. The average rate for office buildings in Queens has dipped below 6 percent for the first time during this cycle and is averaging a strong 4.9 percent so far this year.
The retail property sector is experiencing a pullback similar to, but not quite as severe as, the development market. The pace of sales thus far in 2016 should achieve $592 million for the year, a 34 percent drop from last year’s $899 million. In terms of the number of retail properties sold, 2016’s pace is for 120 transactions for the year, down 13 percent from last year’s cyclical peak of 138 sales. The price per square foot has been averaging $483 so far this year, a 9 percent drop from last year’s all-time record of $533 per square foot. Cap rates in the retail sector in Queens are up about 11 basis points from last year, to an average of 5.6 percent.
It’s the multifamily market that has been doing exceptionally well this year in Queens. Activity is on pace for $1.54 billion in sales, a whopping 78 percent increase over the $868 million total for last year. The number of properties sold is expected to hit 301, a 36 percent increase over last year’s 221 transactions. Property values are set for an all-time record of $298 per square foot (about 5 percent higher than last year’s average of $284 per square foot). Cap rates thus far in 2016 are down about 23 basis points from last year, averaging about 4.5 percent this year, a cyclical low.
Demand for properties in Queens is relatively strong, and we are seeing foreign interest in the borough blossom as illustrated by the recent purchase of the RKO cinema development site in Flushing by a Chinese development company. We expect this demand to continue, which should bode well for the future of this submarket.