Investment Sales Drops Across Nearly All Asset Classes in Brooklyn in 2023

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Property sales in Brooklyn saw a major drop in 2023 compared to 2022, not only in the number of transactions but also the dollar volume, Commercial Observer has learned.

Sales in 2023 reached a combined total of $5.2 billion across 1,090 transactions over the course of the year, a 45 percent drop in the dollar amount compared to 2022 and a 29 percent decrease in the transaction amount, according to TerraCRG’s annual Brooklyn market report.

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Not surprisingly, office assets saw the biggest drop in dollar volume, falling by 70 percent between 2022 and 2023, a total of $218 million across 34 transactions last year, the report found.

In fact, nearly all categories of assets traded in Brooklyn saw major declines, the only exception being residential developments, according to the report. Those properties saw a 6 percent increase in the dollar volume of sales year-over-year, netting $1.1 billion across 172 transactions. 

The decline in investment dollars pouring into Brooklyn has marked the biggest decrease since the brokerage started tracking sales in 2010, according to TerraCRG CEO Ofer Cohen. Even with those historic drops, Cohen cautioned against sounding the alarm about another potential recession. It’s not that investors don’t want to invest or that they don’t have the funding. Rather, they’re just waiting for a better lending environment.

“In 2010, the Brooklyn investment sales market was only a $1 billion market, it was the tail end of the Great Recession. … In five years, it was peaking almost  tenfold,” Cohen said. “What we’re seeing right now is the chilling effect of the high interest rate environment in the last six quarters.”

When compared to 2010, seeing over 1,000 transactions in a down market is nothing to be alarmed about, Cohen said. And that might get better as the Federal Reserve indicated it plans to cut interest rates this year, though it held rates steady for the fourth straight time earlier this month.

Development sites for residential clearly showed better investment potential in the acquisitions of existing apartment buildings, with the latter reaching the lowest average price per square foot over the last five years at $293 per foot compared to the $403 average in 2022 — the peak in the last five years, according to TerraCRG.

While construction financing is harder to obtain than mortgages to buy existing buildings, Cohen said the attraction to development sites for new residential buildings has been determined by many of the regulations that go along with owning rent-stabilized properties such as the Housing Stability & Tenant Protection Act of 2019. On the other side of the coin, there’s a total lack of 421a or an equivalent tax incentive to build new affordable housing, Cohen said.

Industrial building transactions saw a 51 percent decline from 2022 to 2023, with 82 transactions amounting to $618 million. This was mostly because of the growth seen in that market in 2021 and 2022 during the e-commerce boom following the onset of the pandemic.

And 2023 got a big boost at the zero hour thanks to the $248 million sale of an industrial factory at 75 20th Street in Sunset Park, Brooklyn, to FedEx.

“There was a trade on the very last day of the year that happened to be the largest in all of Brooklyn,” said Dan Marks, partner at TerraCRG. “If it weren’t for that trade, [$618 million] would have been the lowest dollar volume in that asset class in nearly a decade, since 2012.”

The value of these facilities has been stable despite the decline, with the amount of available industrial space shrinking due to the Gowanus rezoning that aims to pave the way for more housing in the historically industrial Brooklyn enclave, according to Marks.

The majority of the transactions across all asset classes took place in either north Brooklyn, where $1.1 billion was spent, or in the greater downtown area, where $1.3 billion was spent, TerrCRG found. But only 155 and 147 transactions were made in both these markets respectively, compared to central Brooklyn where $679 million was spent across 226 individual deals.

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