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Manhattan Q2 Report – Office Sales Market Gaining Traction

| Commercial Real Estate News, Deals, Market Reports, Office| Views: 1815

 

Executive Summary

The Manhattan office market seems to be picking up steam as the year advances. The average price per square foot for office buildings trading in the borough is once again on the rise, even though the year’s second quarter failed to reach previous Q2 levels in terms of total sales volume. No major office projects came online in the quarter, but various large developments are in the pipeline for Q3 and are likely to draw investor interest over the coming months.

Q2 Sales Volume Drops 57% Y-o-Y

The year started off slow, with a total of nine major office deals closing in Q1 in Manhattan for a total of $2 billion. Yet while the market seems to have picked up the pace in the second quarter, it still lags previous years’ numbers. Office sales volume dropped 57% year-over-year in Q2, and was 45% below Q2 2015 levels, though such fluctuation is not unusual and the previous couple of years were somewhat of an anomaly. After reaching new heights in terms of sale prices in 2015, the Manhattan sales market might just be returning to a more sustainable level.

The Manhattan office market saw seven deals close in the year’s second quarter, totaling $3.8 billion in sales volume. Despite the year-over-year drop, Yardi Matrix and PropertyShark data points to an 89% increase in total sales volume from Q1 to Q2 2017, signaling that the tides might be turning and the market might build up in the following months.

Average Price per Square Foot Tops the $1,000 Mark Again

The average price per square foot for a Manhattan office property increased 6% year-over-year in Q2 2017, from $978 to $1,037. Prices are nearing the high values recorded in 2016, when the market peaked and trophy office assets traded for as much as $1,212 per square foot.

Furthermore, the average price in Q2 rose nearly 40% compared to the year’s first quarter, when it rested at $743. This growth can be partly attributed to the $2.2 billion sale of 245 Park Ave. in May, which pushed average prices higher. After a sluggish start in Q1, buyer interest is piqued again, and Manhattan remains the most desirable and expensive office market in the country.

Park Avenue Trophy Asset Changes Hands for $2.2B

There were seven major office deals closed in Manhattan in the second quarter of 2017, totaling $3.79 billion. The largest deal of Q2 managed to top the $2 billion mark–245 Park Ave. sold to HNA Group in May for $2.21 billion. The other six sales all closed well below $1 billion, amounting to a combined sales volume of $1.58 billion.

245 Park Ave., Manhattan (Yardi Matrix)

245 Park Ave., Manhattan (Yardi Matrix)

The largest transaction of the quarter was the $2.2 billion sale of 245 Park Ave. in Manhattan’s Plaza District. China-based HNA Group snatched the 45-story, 1.8 million-square-foot office tower from Brookfield Properties in May 2017. The sale was subject to a $508 million loan funded by JPMorgan Chase, Natixis, Deutsche Bank, Barclays and Societe Generale, per Yardi Matrix data. Completed in 1966, the LEED Gold-certified tower is home to high-profile tenants such as Pioneer Financial, Northwestern Mutual, Angelo, Gordon & Co., Regus, JPMorgan Chase and Societe Generale.

85 broad St, Manhattan (via Yardi Matrix)

85 broad St, Manhattan (via Yardi Matrix)

The second-largest office deal of Q2 2017 was the $652 million sale of 85 Broad St. to Ivanhoe Cambridge. The Canada-based firm partnered with Callahan Capital Properties of Chicago to acquire the 30-story, Class A tower from MetLife Real Estate Investments. Built in 1983 as the headquarters of Goldman Sachs, the 1.2 million-square-foot property houses tenants such as WeWork, MLA and JLL. Ivanhoe Cambridge recently secured $72 million worth of green bonds for the tower from Natixis.

2.8 Million Square Feet of Office Space Scheduled for Delivery in Q3

One SoHo Square, Manhattan (via Yardi Matrix)

One SoHo Square, Manhattan (via Yardi Matrix)

Seven large office properties totaling 2.75 million square feet are currently underway in Manhattan, scheduled for delivery in the year’s third quarter. The largest project in the pipeline is One Soho Square, currently rising at 233 Spring St. in the Hudson Square submarket. Owned by Stellar Management and designed by Gensler, the 768,000-square-foot spec development comprises two 13- and 15-story buildings featuring office and first-floor retail space, scheduled for completion in September. The project, which is expected to earn LEED certification from the USGBC, also features a 26,079-square-foot showroom. Tenants already committed to One Soho Square include Trader Joe’s, MAC Cosmetics, Glossier and Cineflix Enterprises.

Another notable project currently underway is the makeover of the Verizon Building at 375 Pearl St., at the Manhattan end of the Brooklyn Bridge. Originally built in 1975, the 32-story building owned by Sabey is undergoing a long-awaited revamp. Upon completion, the tower’s limestone facade will be traded for floor-to-ceiling glass curtain walls, and the building will be used as office space and data storage.

Methodology

  • Square footage parameters – over 50,000 square feet;
  • Minimum amount per transaction – $5,000,000;
  • Transactions recorded until July 3rd, 2017;
  • We excluded ‘ownership stake,’ ‘ground lease’ and ‘portfolio’ transactions in our calculation of the average price per square foot;
  • Data sources: Yardi Matrix, PropertyShark (download raw data).

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