Chris Waggoner Photography

3Q 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

As the new reality of stricter rent regulations becomes clear, the Investment Sales Market in New York City continues to underperform its historical trend of the last decade in both dollar volume and transactional volume. While an expected drop in multifamily sales has continued, it is clear investors across the city have begun to diversify their portfolios and reassess their investment theses to include smaller mixed-use assets as well as other non-traditional assets such as industrial.

Here are our key takeaways from Q3:

  • The office sector contributed $3.59B in total dollar volume in 3Q19 or 53% all volume in 3Q19
  • Northern Manhattan has been hit especially hard by the Rent Regulation law changes where the multifamily sector contributes 50% of its total transaction volume in a given year.
  • Mixed-use has contributed an all-time high (31%) of all transactions in 2019 thus far, compared to just 15% in 2009

The overall market continues to slow

The third quarter of 2019 saw 369 transactions worth $6.8B in activity across Manhattan, Northern Manhattan, Brooklyn, Bronx and Queens. This quarter is the lowest quarter since 354 transactions in 1Q13, while transaction velocity in 3Q19 is down 29% from 2Q19.

$23.9B
Dollar Volume
11% YoY
1404
Transactions
33% YoY
$635
Price Per Square Foot
13% YoY

*Numbers shown are year-to-date, 1Q’19 - 3Q’19

Of the $6.8B this quarter, the office sector represented $3.5B of the total transactions or just over half of the entire volume for the quarter. On an annualized basis we can expect roughly 2,100 transactions for $35B at year’s end. The 2,100 transactions would put the year inline with the output from 2012, while dollar volume has remained fairly consistent since 2017.

On a market level, Brooklyn recorded the majority of transactions for the quarter with 169 while Manhattan (65), The Bronx (36), Northern Manhattan (13) and Queens (88) rounded out the rest. The slow down in the market has been felt in specialized markets like Northern Manhattan where the changes in the multifamily market have had a pronounced effect.

“Despite a recent pull-back from investors in the rent-regulated multifamily asset class, last year’s rezoning of Inwood and the emergence of Opportunity Zones have created a silver lining for Northern Manhattan,'' says B6’s Director of Real Estate Investment Sales, Brian Whelan. “These changes have led to an uptick in investment demand for large scale value-add and ground-up projects, which should equate to positive market conditions going forward.”

Price per square foot ($634) for core asset types has fallen slightly from 2Q19 ($646), but is still on pace to be all-time high annually. Pricing for development sites in New York City remains strong and has continued to increase year over year.

On an asset level, mixed-use properties in the boroughs continue to be the outstanding performer with 114 transactions for the quarter citywide, while the office sector in Manhattan has performed well.

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

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Spotlight: What’s Driving Industrial’s Rise?

Even as the overall New York investment market cools, investors are still finding opportunities in select asset classes. Industrial properties, in particular, have been moving at record pace in 2019, with roughly $2.4B projected to sell by year’s end. Through Q3, industrial dollar volume is up over 145% since 2016.

Industrial’s sudden rise is evidence that the ambitions of online retailers are having a dramatic impact on the investment market. Amazon and Walmart, for instance, have both opened sprawling fulfillment centers in NYC recently to cut down on delivery times. Other companies are following suit, looking for space close to urban cores from which they can reach consumers quickly.

Industrial purchases were concentrated in Brooklyn in Q3, with neighborhoods like Flatbush and Bed-Stuy leading the way. Though demand for smaller warehouses has grown across the country, sales prices in NYC certainly aren’t shrinking; the average industrial deal topped $12M in Q3, the highest ever.

Follow the rise of Industrial

NYC industrial transactions in

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Transactions

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Dollar Volume

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Industrial Transactions Sized by Sales Price

$10M

$100M

$200M

$300M

Industrial Transactions Sized by Sales Price

While the industrial market is riding a wave of strong demand, the outlook for other asset types isn’t nearly as rosy. Chief among the laggards is retail, which has experienced a noticeable decline since its 2014 high. Even as the retail market rebounds slightly in 2019, dollar volume is on pace to drop 64% this year relative to 2012.

The growth of e-commerce has contributed to the softness in retail, as consumers trade shopping in store windows for browser windows. But the story runs deeper. There’s also just an overabundance of stores; nationwide, the U.S. now has five times more shopping space per capita than the U.K. and 10 times more than Germany. In that context, a dip in retail investment seems inevitable.

Follow the fall of Retail

NYC retail transactions in

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Transactions

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Retail Transactions Sized by Sales Price

Retail Transactions Sized by Sales Price

What Firms Are Buying up Industrial?

As industrial booms and retail wanes, that begs the question: which firms are driving the shift in preferred asset classes? B6 analyzed the portfolios of the 500 largest property holders in New York to find out.

Many equity funds and public REITs have been placing big bets on industrial over the last 24 months. One of the most noteworthy entrants is Blackstone, now the sixth largest property holder in NYC according to data from RCA. Last year, they made waves by purchasing Gramercy Trust, an industrial real estate investment trust, for $7.6B. Then in June, they completed one of the largest industrial real estate transactions in history with GLP, snatching up a staggering $18.7 billion in warehouse space.

“Logistics is our highest conviction global investment theme today,” Ken Caplan, Global Co-Head of Blackstone Real Estate said in a press release announcing the GLP deal.

Blackstone’s buying spree has caused its industrial portfolio in New York City to grow eightfold over the last 24 months. Follow the chart below to see what the company purchased, and what it sold off.

Blackstone Has Been Buying Industrial at an Unprecedented Pace

Change in Holdings for Blackstone in NYC Metro Area, last 24 months

Dispositions

last 24 months

Blackstone’s industrial portfolio was limited in October of 2017, with only 5 total assets.

Office

13 Assets

Retail

9 Assets

Office

16 Assets

Industrial

5 Assets

October 2017

Total Assets Held

Retail

6 Assets

Apartment

24 Assets

Industrial

40 Assets

Hotel

11 Assets

October 2019

Total Assets Held

Apartment

26 Assets

Hotel

8 Assets

Over the last two years, Blackstone has acquired a significant

amount of assets.

A large majority of their acquisitions were industrial properties, as they hold 40 as of October 2019.

Acquisitions

last 24 months

Blackstone’s industrial portfolio was limited in September of 2017, with only 5 total assets.

Dispositions

last 24 months

Office

13 Assets

Retail

9 Assets

Office

16 Assets

Industrial

5 Assets

October 2017

Total Assets Held

Retail

6 Assets

Apartment

24 Assets

Industrial

40 Assets

Hotel

11 Assets

October 2019

Total Assets Held

Apartment

26 Assets

Hotel

8 Assets

Over the last two years, Blackstone has acquired a significant

amount of assets.

A large majority of their acquisitions were industrial properties, as they hold 40 as of September 2019.

Acquisitions

last 24 months

Blackstone’s industrial portfolio was limited in September of 2017, with only 5 total assets.

Dispositions

last 24 months

October 2017

Total Assets Held

Office

13 Assets

Retail

9 Assets

Office

16 Assets

Industrial

5 Assets

Retail

6 Assets

Apartment

24 Assets

October 2019

Total Assets Held

Industrial

40 Assets

Hotel

11 Assets

Apartment

26 Assets

Hotel

8 Assets

Acquisitions

last 24 months

Over the last two years, Blackstone has acquired a significant

amount of assets.

A large majority of their acquisitions were industrial properties, as they hold 40 as of September 2019.

Blackstone’s industrial portfolio was limited in September of 2017, with only 5 total assets.

Dispositions

last 24 months

Office

Oct 2017 Total

Retail

Industrial

Office

Apartment

Retail

Oct 2019 Total

Hotel

Industrial

Apartment

Hotel

Acquisitions

last 24 months

Over the last two years, Blackstone has acquired a significant amount of assets.

A large majority of their acquisitions were industrial properties, as they hold 40 as of September 2019.

Despite a slew of splashy acquisitions, Blackstone has been just the third largest acquirer of industrial properties since October 2017. Colony Capital and Cammeby’s have both grabbed more over the same timeframe. But Blackstone will soon take Colony Capital’s spot at the top -- they plan to acquire Colony Capital’s industrial holdings for $5.9B by the end of next quarter.

Meanwhile, NYC’s largest property owners haven’t been nearly as eager to invest in the retail space. In the last 12 months, they’ve disposed of more retail ($2.8B worth) than they’ve acquired ($2.1B).

The diagrams below shows the acquisition and disposition history of firms with the fifteen highest increases in industrial properties over the last 24 months. Use the toggles to see which firms are scooping up, or offloading, other asset types in New York.

Industrial’s Largest Investors

Change in Holdings for 500 Largest Property Owners in NYC Metro Area, last 24 months

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assets

Office Retail Industrial Apartment Hotel

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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 September 9, 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)

To analyze the purchases of individual firms, we pulled acquisition and disposition reports for the top 500 property owners in the NYC metro area from RCA. We deduced the composition of each firm’s portfolio on October 1, 2017 by taking their present number of holdings in an asset class on September 30, 2019, then subtracting the number of properties they acquired in the past 24 months and adding the number they disposed of.