Multifamily and Office Continue to Drag Down NYC Investment Sales

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Fewer investment properties in New York City traded hands in the first half of 2023 than in the second half of 2022, thanks in large part to a sluggish multifamily and office market, according to a new report.

The first half of 2023 saw a total of 1,046 deals, a 9 percent drop compared to the second half of 2022 and a 31 percent decrease from the same time last year, according to a report from Ariel Property Advisors. The ones that did sell, sold for less, with only about $12.8 billion being spent in the five boroughs so far this year, a 12 percent drop from the last six months of 2022.

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Multifamily and office sales dragged the market down considerably, according to Ariel’s data, despite steady increases in industrial, non-office commercial and development sites. But, Areil analysts expect the rest of the year to look much better.

“I think by the end of this year and early next year there are going to be more transactions,” Shimon Shkury, president of Ariel, told Commercial Observer. “One [reason] is we will see a tremendous amount of capital waiting to invest in mortgage maturities. … We’ve seen mortgage maturities affecting the office market, I think we’ll see them affecting the rent-stabilized market as well.”

Only $4.9 billion in multifamily sales took place during the first half of 2023, a decrease of 28 percent from $6.8 billion in the second half of 2022 and a long fall from $8.6 billion in the first half of 2022. Individual transactions in that sector of the market went from 700 in the second half of 2022 to 571 so far this year, which was also a decline from the 892 in the first half of 2022.

“When we look at rent-stabilized multifamily, this is the subsegment that suffered a major regulation overhaul in 2019 [through the Housing Stability and Tenant Protection Act], which disallowed the growth of rent even upon vacancy,” Shkruy said. “So now you have a building that has some vacant units and the owners could ask themselves, ‘Do I even want to rent it out? Because I do need to put money into the unit.’ ”

Office saw  $2.4 billion in sales in the first half of 2023 compared to $3.3 billion in the second half of 2022, a 25 percent decrease and 48 percent less than the $4.7 billion sold in the first half of 2022. This marked the second-lowest point for office sales since 2010, right after the first half of 2021, Ariel reported. 

While office space is selling at a lower dollar volume, there were 36 transactions in the first six months of 2023, a slight increase from the 31 in the last half of 2022 but a drop from the 65 in the first half of last year.

Hotel and retail were asset classes that attracted investors the most with $1.7 billion in sales across 131 transactions in the first half of 2023, a 41 percent increase in dollar volume from $1.2 billion in sales in 137 deals in the second half of 2022. But it was still a 34 percent decline compared to the $2.7 billion traded throughout 1999 transactions in the first half of 2022.

Up to 114 sales were made for industrial space in the first half of 2023 with a value of $714.4 million. While this was an improvement from the $654.7 million in the last half of 2022, it wasn’t much of a boost and was a huge drop from the $1.9 billion worth of deals in the first half of last year.

Development sites saw $2.5 billion in deals so far this year compared to the $2.1 billion made in the second half of 2022 and $3.6 billion made in the first half of 2022. While last year saw 212 total transactions, the second half of the year dwindled to only 150 transactions followed by 155 in the last six-month period.

But with distress in banking, rising interest rates and mortgage defaults, Ariel believes there will be opportunities in the second half of the year as those conditions force sellers to be more flexible on pricing.

Another bright spot in the next six months will be the Federal Deposit Insurance Company‘s disposition of Signature Bank (SBNY)’s mortgages, which Ariel thinks is going to boost transaction activity for 2023. 

Mark Hallum can be reached at mhallum@commercialobserver.com.