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NYC Q1 Office Report – 2017 Off to Sluggish Start

Commercial Real Estate News, Deals, Market Reports, Office| Views: 1128

 

Executive Summary

The New York City office market started slow in the first months of 2017, continuing to cool down from the record highs recorded in 2015. Yet with the presidential election now in the rearview mirror, and with the unemployment rate at a record low of 4.8% as of February, the market is likely to pick up steam over the following months. The healthy job market is fueling corporate expansions and relocations, while property owners try to stay competitive by upgrading older buildings to meet the high demand. Not surprisingly, office investors remain committed to Midtown Manhattan, which broke new records in terms of price per square foot in 2016.

Q1 Office Sales Activity Off to Slow Start

Although office leasing activity in New York City surged in the first months of the year, highlighted by Spotify’s 378,000-square-foot lease at 4 World Trade Center, in terms of sales, Q1 2017 did not rise to levels recorded in the previous three years. To track down recent sales activity, we used Yardi Matrix and PropertyShark data to analyze all office transactions over 50,000 square feet to close in Q1. We also extracted a list of new office projects on track for delivery in the second quarter of 2017.

Total sales volume in the first quarter was 63% lower than that recorded in Q1 2016—10 properties changed hands in the first three months of the year for a little over $2 billion. By comparison, Q1 2016 recorded the same number of deals, for a total of $5.54 billion, while Q1 2015 was the clear winner—26 deals closed in the quarter for a total of $10.3 billion.

Average Price Per Square Foot Drops 23% Y-o-Y in Q1

The average price per square foot for a New York City office asset dropped 23% year-over-year, from $964 to $741. The average price also registered a 12% decrease from the fourth quarter of 2016, and is well below the high point of Q2 2015, when per-square-foot prices reached $1,158. Nonetheless, excluding seasonality and concerns about an ‘overheated market,’ New York City (more specifically, Midtown Manhattan) is still one of the world’s most expensive office markets, in terms of both asking rents and sale prices. National and offshore investors alike remain committed to this highly competitive market, which promises stable, long-term returns.

Largest Sales of Q1 2017 – GIC, Paramount Pay $1.04B for 60 Wall Street

60 Wall St., Manhattan (Yardi Matrix)

60 Wall St., Manhattan (Yardi Matrix)

Out of a total of 10 office assets sold in the first quarter of 2017, 8 are located in Manhattan. The largest sale to close in Q1 was also the only one to top the $1 billion mark: Singaporean sovereign wealth fund GIC formed a 95%/5% joint venture with Paramount Group to acquire 60 Wall St. for a total price tag of $1.04 billion. As a result, Paramount will retain a 5% stake in the Downtown Manhattan property, which houses Deutsche Bank’s U.S. headquarters. The banking giant is the sole tenant of the 47-story, 1.6 million-square-foot office tower.

Another notable trade was the $370 million sale of the HBO Building at 1100 Avenue of the Americas. A joint venture between Brookfield Properties and The Swig Co. acquired the leasehold at the former Bryant Park Building, and plan to redevelop the property into a mixed-use office and retail building, according to Real Estate Weekly. The sale comes on the heels of sole tenant HBO’s announcement that it will move to 30 Hudson Yards in 2019.

Two Brooklyn office properties over 50,000 square feet in size also changed hands in the first quarter, though at much lower price tags. Meadow Partners paid $54 million to acquire 57 Willoughby St. in Downtown Brooklyn, from long-time owner Helen Keller Services for the Blind. Another large Brooklyn property to trade in Q1 was 185 Marcy Ave. in Williamsburg—Acuity Capital Partners bought the six-story, 70,000-square-foot asset for close to $30 million, from a trust controlled by the Gutman family.

See the list of top 10 Q1 office sales below:

AddressSale priceBoroughBuyerSeller
60 Wall Street$1,040,000,000ManhattanGIC Real Estate + Paramount GroupParamount Group
1100 Avenue of the Americas$370,000,000ManhattanBrookfield Properties + Swig CompanyThe Nickerson family
551 Madison Avenue$155,000,000ManhattanLexin CapitalBarings
34 West 14th Street$153,000,000ManhattanNew SchoolSamson Associates
71 5th Avenue$85,000,000ManhattanMadison CapitalSamco Properties
250 West 54th Street$83,126,000ManhattanZar GroupAscot Properties
57 Willoughby Street$54,000,000BrooklynMeadow PartnersHelen Keller Services for the Blind
220 5th Avenue$53,846,000ManhattanStellar Management + Imperium CapitalDino & Sons
56 West 45th Street$50,000,000ManhattanGatsby RealtyNesbitt, Marjorie E
185 Marcy Ave$29,950,000BrooklynAcuity Capital Partners Trust controlled by the Gutman family

What’s Next? Projects Scheduled to Come Online in Q2

Though it didn’t exactly start the new year with a bang, the New York City office market is poised to pick up steam in the upcoming months, with a number of standout office projects already in the works. Construction is largely concentrated in two boroughs: five Brooklyn office projects and three Manhattan office developments are scheduled to come online in Q2 2017. What stands out is that all the projects on track for Q2 delivery are adaptive reuse projects, which are less costly than building new projects from the ground up.

Three projects are currently underway in Manhattan, scheduled for delivery in the second quarter. The largest one is Rockpoint Group’s 18-story, 239,747-square-foot office project at 412 W. 15th St. One of the largest new office developments in the Meatpacking District, the CetraRuddy-designed project blends together two historic warehouses on West 14th Street with a new glass-clad structure on West 15th Street. In Midtown, Vanbarton Group is converting the dingy building at 45 W. 45th St. into modern offices, while on the Upper East Side, Princeton International Properties is turning the 15-story asset at 110 E. 60th St. into state-of-the-art medical office space, dubbed Park Sixty Medical.

Office Projects Scheduled for Delivery in Q2 in NYC

Across the Brooklyn Bridge, developers are fully embracing the adaptive reuse concept, fighting over old vestiges of the borough’s industrial past. There are five industrial-to-office conversions scheduled for completion in Q2 2017, including the redevelopment of the historic Dumbo warehouse at 10 Jay St. The former Arbuckle Brothers sugar refinery will be home to a modern office and retail space, upon completion in late May. Brooklyn was also the location of the only new office project to come online in New York City in Q1: Marcal Group celebrated the finalization of 2361 Nostrand Ave.

Methodology

  • Square footage parameters: over 50,000 square feet
  • Transactions recorded up until April 10th, 2017
  • Average per-square-foot price calculation – ground lease, ownership stake and portfolio deals excluded
  • Database – Yardi Matrix, PropertyShark.

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