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Manhattan Office Sales Volume Holds Steady in Q1, Even With No Foreign Buyers

 

Executive Summary

Following a disappointing 2017, which marked the weakest year since 2013 in terms of sales activity in the Manhattan office market, the borough seems poised for a more fruitful 2018. The final quarter of 2017 signaled an imminent comeback for the market, even in the seeming absence of high-profile Asian investors buying prized office gems in the heart of Manhattan. The first quarter of 2018 reinforced that trend, with sales volume keeping steady and average prices reaching a new high of $1,266 per square foot. The office pipeline is also expanding, and the upcoming quarter will add new staples to the Manhattan skyline, including 3 World Trade Center and 55 Hudson Yards. Read on to see how the market fared during Q1 2018 and get a glimpse of what’s coming in the year’s second quarter.

Office Sales Volume Keeps Steady at $4.5B, Even With No Foreign Buyers

After hitting an all-time low in terms of dollar volume in Q3 2017, sales activity in Manhattan bounced back during Q4 and kept the momentum going during the first quarter of 2018, Yardi Matrix data shows. A total of 9 office deals closed for $4.5 billion during Q1 2018, marking a 126% growth year-over-year and just a 2% decrease compared to the previous quarter. While the total dollar volume recorded during the first months of the year is nowhere near the high point of Q1 2015, when 21 office properties changed hands for more than $10 billion, the market seems to be stabilizing after a series of disappointing quarters. It’s safe to say, at least for the time being, that fears of an office bubble bursting in Manhattan are unfounded, even with foreign buyers seemingly out of the picture–all the office assets traded in Manhattan during Q1 were acquired by U.S.-based companies (that we know of–foreign investors might still be partnering with U.S.-based companies in ventures that are not made public).

Average Prices Reach 4-Year Peak of $1,266 per Square Foot

While the quarterly dollar volume remained on par with Q4 2017, the average price per square foot for office buildings trading in Manhattan in Q1 rose 74% compared to the previous quarter. Average prices also marked a 70% year-over-year increase, reaching a four-year high of $1,266 per square foot, and more than doubled compared to the low point of Q1 2014 ($626 per square foot). The spike in prices, coupled with a steady sales volume, is a testament to the burgeoning appeal of the Manhattan office investment market. Perhaps the absence of offshore investors just means more investment opportunities for U.S. buyers–California-based Google closed one of the biggest office deals in New York City history in Q1, shelling out $2,181 per square foot for the property at 75 Ninth Ave. in March.

Google Forks Over $2.4B for Chelsea Market in Q1

A total of 9 major office sales closed during Q1 2018 for $4.5 billion in dollar volume, marking a slight 2% decrease compared to Q4 2017. What makes the first quarter of the year stand out is the sale of Chelsea Market–an eight-story, iconic mixed-use asset located at 75 Ninth Ave. in Manhattan’s Chelsea neighborhood. Google’s parent company, Alphabet Inc., paid a whopping $2.4 billion to purchase the building from Jamestown in March, marking the second-largest single-asset sale to ever close in NYC, according to The Real Deal.

Chelsea Market, Manhattan (Yardi Matrix)

Chelsea Market, Manhattan (Yardi Matrix)

The historic Chelsea Market building was originally developed in 1934 and converted to office use in 1997, and currently incorporates 1.1 million square feet of office and retail space. Before it underwent an adaptive reuse effort and was turned into office space, the building was home to a Nabisco (the former National Biscuit Co.) factory, and it was here that the popular Oreo cookie was first invented and produced. Nowadays, the property houses an eclectic mix of high-profile tenants, including Google, YouTube, the Food Network, and EMI. New owner Google also owns the building across the street at 111 Eighth Ave., which it acquired back in 2010 for $1.8 billion.

6.5 Million Square Feet of Office Space on Track for Q2 Delivery

The 2017 Manhattan office pipeline was bone dry, with just one project exceeding 50,000 square feet in size coming online–the Bridge at Cornell Tech on Roosevelt Island. Developers quickened the pace in the first months of 2018, and three projects were delivered to the market, totaling 1 million square feet. The largest delivery of the quarter was the property at 787 11th Ave. in the Clinton – Hell’s Kitchen submarket. Originally built for industrial use in 1929, the 10-story, 550,000-square-foot building was developed by The Georgetown Co. and includes a 265,000-square-foot showroom.

The second-largest office delivery of Q1 2018 was the NYU Langone Medical Center Science Building. Encompassing 365,000 square feet of space, the 15-story building at 435 E. 30th St. in Kips Bay is owned and occupied by the New York University.

The third completion of Q1 was 413W14 & 412W15 at 412 W. 15th St. in Chelsea. Developed by the Rockpoint Group, the two-building complex incorporates nearly 240,000 square feet of office and retail space, aims to earn LEED certification from the USGBC, and is currently home to tenants including Rag & Bone and the Argo Group.


The next quarter of 2018 looks even more promising in terms of office development, as eight new projects totaling 6.5 million square feet are scheduled for delivery in Q2. The highlight of the quarter is set to be the completion of the 2.5 million-square-foot 3 World Trade Center. The 80-story tower at 175 Greenwich St. is being developed by Silverstein Properties and is scheduled for delivery in May. The new skyscraper will include five floors of retail space, and share another 350,000 square feet of underground retail space with the WTC Transportation Hub. 3 WTC is subject to an 86-year unsubordinated net ground lease held by the Port Authority of New York and New Jersey, expiring in 2100, per Yardi Matrix data.


Another Q2 milestone will be the delivery of 55 Hudson Yards, a 1.4 million-square-foot office project located at 550 W. 34th St. in the Hudson Yards submarket. The spec project spearheaded by Mitsui Fudosan America will include 13,278 square feet of retail and aim for LEED Gold certification. The building is subject to a 30-year PILOT ground lease held by the New York City Industrial Development Agency, expiring in 2044.

Methodology

We used detailed Yardi Matrix data to analyze all office transactions with price tags equal to or exceeding $5 million to close in Manhattan during the first quarter of 2018 (January through March). Our analysis, based on data recorded up until April 5th, 2018, includes completed office buildings equal to or larger than 50,000 square feet that changed owners during the quarter. In the case of mixed-use assets, only properties featuring over 50% office space were taken into account. We counted portfolio deals as single transactions and excluded distressed sales altogether.

To make sure the trends and comparisons presented in our analysis are valid, we excluded portfolio, partial interest and ground lease deals from our calculation of the average price per square foot.

While every effort was made to ensure the timeliness and accuracy of the information presented in this report, the information is provided “as is” and neither CommercialCafe nor Yardi Matrix can guarantee that the information provided is complete.

Property images courtesy of Yardi Matrix.

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