Chris Waggoner Photography

1H 2019

Block by Block

B6 Real Estate Advisors NYC Market Insights.

A comprehensive data analysis providing macro and micro market trends for NYC commercial real estate.

Chris Waggoner Photography

Market Update

The investment sales market in New York City continued its sluggish performance through the second quarter of 2019. Dollar volume and transactions both decreased year-over-year, in part due to weakening demand for rent stabilized multifamily assets across the city. B6 anticipates a broader decline in transactional velocity in the second half of 2019, as the market reacts to the new rent regulation handed down from Albany in June.

As the multifamily sector struggles, market signals indicate investors’ appetites are shifting to other core asset types such as Manhattan office, mixed-use assets and development sites in the boroughs. B6’s analysis shows that investment opportunities still exist in specific neighborhoods, even as the wider market enters a period of uncertainty.

Takeaways:

  • On an annualized transactional basis, 2019 is on pace to return fewer than 2,000 transactions across NYC. That’s a level not seen since the “Great Recession” and 20% off the five-year average.
  • Dollar volume reached $15.6B in the first half of 2019, putting it on pace to reach just $34B for the year. That figure would represent a drop of 56% from the peak of the market in 2016.
  • Multifamily has seen a citywide decline of 42% in transactional activity from last year.
  • Northern Manhattan has seen a 61% drop in transactional activity compared to the first half of 2018, largely from the multifamily sector.

The first half of 2019 saw 912 transactions worth $15.6B in activity across Manhattan, Northern Manhattan, Brooklyn, Bronx and Queens. That represents a 36% drop in transactional volume from the first half of 2018, which saw 1,416 transactions for $19.1B in consideration. Price per square foot remained strong with an all-time high of $646 across core asset types.

$15.6B
Dollar Volume
18% YoY
912
Transactions
36% YoY
$646
Price Per SF
17% YoY

Northern Manhattan (-61%) and Brooklyn (-43%) saw considerable drops in transactional volume year-over-year, driven by the multifamily sector. Elsewhere, the Bronx saw a decline in activity of 41%, as did Queens (-27%) and Manhattan (-7%).

Price per square foot in core asset types and price per buildable foot continue to increase to all-time highs. Price per square foot citywide is up 17% year-over-year to $646, with the biggest gain coming in Manhattan. Meanwhile, buildable price per square foot has increased 14% year-over-year to $283, demonstrating continued value for prime development sites across New York City.

On an asset level, the office sector has continued its strong performance with a 9% increase in pricing from 2018 in Manhattan. The office sector is the only sector on pace to increase in transactions year over year.

Explore other trends at the market, submarket, and property type level below.

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Dollar Volume

Quarterly totals, 2009—2019

Dollar Volume

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Transactions

Quarterly totals, 2009—2019

Transactions

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Price per Square Foot

Quarterly mean $/SF, 2009—2019

Price per Square Foot

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No data available

Mouseover a line to show values

Mixed-use Absorbs Demand

Demand for the multifamily asset category — which includes walk-up and elevator apartment buildings — has been softening since 2017. After contributing over 35% of transactional activity between 2009 and 2016, multifamily’s share of total activity has dropped to 26% in 2019 so far. The walk-up sector — which contributes the majority of multifamily sales — is on pace to see only 424 transactions in 2019, down 42% from 2018.

Multifamily demand is being absorbed by mixed-use assets, particularly in the boroughs. Mixed-use made up 31% of total activity in 1H19, marking the first time this decade that demand for another asset class has surpassed multifamily. If this pace continues, 2019 will be record-setting for mixed-use assets, with $5.2B in property anticipated to sell. That would represent an increase of 23% from 2018 and 74% from 2015. The average price of an eight-unit, mixed-use asset has also risen from $5.6M to $8.4M over the last two years.

Territory Spotlight

Sweeping changes are coming to the New York real estate market by way of new rent regulations that passed the New York State Senate and Assembly last month. While the impact of the new rules on the investment market may not be immediate, many real estate investors are bracing for an uncertain future. Even if existing multifamily stock is most directly affected, B6 expects a continued slowdown in activity across most asset types in response to the rent regulation.

But even in this environment, opportunity still exists in certain pockets of the city. So B6 tapped three of its brokers to find out where they see potential upside in their neighborhoods. They highlighted trends in Bushwick, Harlem, and Queens that will likely spur investment over the longer term.

DJ Johnston

646.933.2619

Bushwick

DJ Johnston

Partner, Senior Managing Director

I think [the Bushwick rezoning] is going to have a significant impact on the neighborhood as a whole. It’s going to promote private investment across every pocket of Bushwick. It may not double and triple land values, but I do think it increases values by 30 to 40 percent in certain areas, which will certainly accelerate transaction activity.

DJ Johnston

Bushwick’s Recent Performance

The first half of 2019 was relatively slow for Bushwick, where only 19 commercial transactions occurred through June 15. Annualized transactions are on pace to fall another 29% year-over-year, continuing a slide dating back to 2015.

Properties Transacted in 1H19

Bushwick Transactions Decline
Total 1H Transactions, 2009 - 2019
Bounds of Bushwick Rezoning Plan (via Curbed)

But DJ Johnston — a Partner and Senior Managing Director at B6 who focuses on the Bushwick area — sees some reason for optimism. He points to New York City's plan to rezone Bushwick, first unveiled in April, as a potential catalyst for longer-term growth. "I think over time, it's really going to change the face of Bushwick," said DJ.

Rezoning Increases FAR

The proposal is intended to promote affordable housing, renovate open space, and improve transportation. But DJ was also surprised by the “significant increase in density that [the city] is proposing” in certain pockets of Bushwick.

In a number of the newly defined zoning districts, as represented on the map, the allowable floor area ratio for commercial and residential uses would increase two to three times its current zoning allowance. Land in the C4-4D zones on Broadway, in particular, would be up-zoned to a maximum residential FAR of 7.2.

Proposed Zoning Districts
 C4-5A   4.6 FAR (residential)
 C4-5D   5.6 FAR (residential)
 C4-4D   7.2 FAR (residential)
 Mid-Density (M3)   3.0 FAR (commercial)

Substantial up-zoning along transit corridors on Wyckoff, Myrtle, and Broadway would make the neighborhood more attractive to large-scale developers. And with those projects come neighborhood amenities and additional retail options.

DJ sees land along the L and J-Z subway lines as investment opportunities moving forward.

I like areas like the Halsey L train for commercial development, and the Gates J/Z train for mixed-use development...those neighborhoods have character, strong upside fundamentals, and a good balance of product types that investors can capitalize on.

DJ Johnston

Harlem

David Chase

Partner, Executive Managing Director

I see Bushwick and Bed-Stuy as the closest comparisons to Harlem right now...we’re seeing similar growth and opportunities.

David Chase

Harlem’s Recent Performance

The Harlem submarket got off to a hot start in 1Q19, with dollar volume topping $350M for the first time since 2016. Both dollar volume and transactions, however, tapered off in 2Q.

Still, property in Harlem continues to get more expensive on a price per square foot basis, topping $600 in 1H19.

Properties Transacted in 1H19

Harlem is Getting More Expensive
Avg. $/SF in Harlem vs. NYC, 2009 - 2019

Mouseover a line to show values

A Development Resurgence

And development activity in Harlem is turning a corner. David Chase — a 17-year real estate veteran who oversees the area for B6 — was a little surprised that East Harlem’s rezoning in 2017 didn’t induce more large-scale, development projects. “I expected more to be honest with you,” he said.

But according to B6's internal data, there are now 67 sites in the pre-construction or construction phase across Harlem.

Current Development Sites

Opportunities in Harlem

David envisions more investment opportunities in Harlem over the coming decade. Columbia University is finally making real progress on its planned expansion into Manhattanville, having already completed three buildings on the new campus. With the Columbia Business School slated to relocate to Manhattanville in 2022, West Harlem could be approaching a breakout moment.

You can see what's attracting [developers] to West Harlem...I think Columbia’s expansion plays the biggest role there. In West Harlem, you'll need housing for people who won't be living on campus...and that sparks interest for investors who are building and purchasing rental properties in the area.

David Chase

Meanwhile, in East Harlem, New York City's plan for the Second Avenue Subway could have major implications for the neighborhood. After years of false starts, the city finally completed phase one of the project in 2017, stopping the line at 96th Street. The second phase promises to extend service all the way to Lexington and 125th Street in East Harlem.

“We're going to see activity in the coming months and years on this corridor,” David said, noting that B6 is already starting to represent property owners in Harlem along the proposed line.

Queens

Thomas Donovan

Partner, Vice Chairman

Long Island City, Astoria, and Sunnyside — the three surrounding neighborhoods — had already caught fire. Amazon’s [plan for HQ2] was just the cherry on top. If you take the cherry out, they're still on fire.

Thomas Donovan
55-01 Second Street (via The Real Deal)

Even as Amazon pulled out of its planned HQ2 in Long Island City earlier this year, commercial activity in the near vicinity ballooned. Dollar volume across LIC, Astoria, Sunnyside, and Woodside grew 35% in the first half of the year, driven in part by the sale of a 1.6 million square foot development site in Hunters Point.

Industrial Assets Drive Growth

Thomas Donovan — a Partner and Vice Chairman at B6 — has observed the Queens market since 1998. He sees a shift underway in the product type that investors are gravitating to. "Multifamily is slowing...but industrial is picking up the slack," he said.

He sees industrial assets as a key driver of growth across Queens.

Industrial Properties Transacted in 1H19

There’s Demand Beyond LIC

The growth isn't just relegated to select neighborhoods like Long Island City and Astoria. Annualized dollar volume across Queens is on pace to fall just short of $4.6B, in what would be the second-highest total this decade. And price per square foot has also increased substantially across most Queens neighborhoods.

Change in Price/SF, 2018-2019
 Decrease
Increase 

“Everybody talks about Long Island City, but the borough is so dynamic that that's not the beginning and end,” Thomas noted.

Still, Thomas urges caution as we head into the latter half of 2019 in light of the new rent regulations. “I think we’re going to see a buyer’s market the next six to 12 months,” he said.

“Long Island City is still a good market, but this [rent regulation] is going to affect the whole city.”

To learn more about B6 Real Estate Advisors exclusive listings throughout the New York Metropolitan area:

Methodology

All metrics presented in this report — Dollar Volume, Transactions, Price per Square Foot, and Price Per Buildable Square Foot — are based on closed sales that occurred before June 15, 2019. Only portfolios located within Manhattan, Brooklyn, Bronx, or Queens with a sale price of at least $1,000,000 were included in our calculations. We consider the divide between the Manhattan and Northern Manhattan markets to be 96th Street on the eastside and 110th Street on the westside. Data comes from Reonomy, RCA, ACRIS, NYC Open Data, and our own data repositories.

We used the following definitions to record the property type of each transacted building:

  • C1, C2, C4, C5, C9
  • D1, D2, D3, D5, D8, D9
  • K4 and all “S” classes (S0, S1, S2, S3, S4, S5, S9)
  • select “K” classes (K1, K2, K3, K5, K6, K9) / select “R” classes (R5, R7, R8, RK)
  • All “O” classes: (O1, O2, O3, O4, O5, O6, O7, O8, O9) and RB
  • All “E” classes (E1, E3, E4, E6, E7, E9), all “F” classes (F1, F2, F4, F5, F8, F9) and RW
  • G0, V0, V1, and other properties purchased for development

We excluded the following property types from our analysis altogether:

  • Co-Op/Condo Buildings: C classes (C6, C8), D classes (D0, D4), R classes (R0, RM)
  • Residential Buildings: All “A” classes (A0, A1, A2, A3, A4, A5, A6, A7, A8, A9), all “B” classes (B1,B2,B3,B9), and select “C” classes (C0, C3)