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Our Predictions for
New York City Real Estate

 

Our Top-line Predictions

Last year was a tumultuous one for the investment sales market in New York City. New rent regulation put a damper on investors’ appetites after the state’s legislation passed in June. Even amid a roaring economy, 2H19 was a sluggish one.

As we head into 2020, there’s cautious optimism around the B6 offices. We surveyed our investment sales and capital advisory teams to gauge opinions on where the market is headed. Here’s what we found.

By the Numbers

 

Dollar Volume

+6.0%

Projected YoY Growth

 

B6 projects that dollar volume across New York City will rise slightly in 2020, as investors become more comfortable with the new multifamily regulations. That would place total volume just under $37B across Manhattan, Brooklyn, Queens, and The Bronx.

 

Transactions

+11.0%

Projected YoY Growth

 

Our team sees transactions growing even faster than dollar volume this year, as the market partially recovers from a slow 2019. An 11% increase in transactions would still leave the NYC market well short of 2018 levels.

 

$/Sq. Ft.

+0.0%

Projected YoY Growth

 

On the aggregate, B6 predicts that price per square foot will stay relatively flat in 2020, after growing seven of the last ten years. A number of our brokers do anticipate larger change in $/SF though; a handful of our team members foresee a double-digit swing year-over-year.

 

Cap Rates*

+0.7%

Projected YoY Growth

 

Cap rates on rent-stabilized, multifamily properties are almost universally expected to grow this year according to our internal B6 poll. In light of New York state’s new rent regulation guidelines, we’re likely to see some motivated sellers in the multifamily market.

*only represents cap rate data for rent-stabilized, multifamily properties

By the Market

 

On the rise

The borough that will experience the most growth

The Bronx

When asked about the borough that will experience the largest jump in dollar volume, nearly half of our team (44%) put The Bronx at the top of the list.

“There’s a lot of large-scale development happening in The Bronx, which has people excited,” said Mitchel Flaherty, a Director at B6 who focuses on the Southern Bronx neighborhood.

 

About to fall

The borough least likely to grow

Manhattan

Dollar volume declined sharply in New York City’s most iconic borough last year, and the B6 staff expects history to repeat itself. Just 26% of those polled said that dollar volume would increase in Manhattan during the new year.

Still, B6’s Zach Redding urges investors not to dismiss Manhattan entirely. “With a longer-term outlook, you can capitalize on high cap rates.”

 

On the rise

The neighborhoods to watch

Gowanus, BK

Kingsbridge, BX

Astoria, QN

Maspeth, QN

We asked our staff which neighborhood would be the fastest growing in 2020, based on percent increase in dollar volume. These are the neighborhoods that received multiple votes.

Gowanus, in particular, seems poised to break out, but only if the proposed rezoning comes to pass. “The Uniform Land Use Review Process (ULURP) takes a mandatory seven months and hasn’t even started yet,” said B6’s Bobby Lawrence. “When and how [the rezoning] happens will dictate 2020 dollar volume investment in Gowanus.”

By Asset Class

 

On the rise

The asset class that will experience the most growth

Industrial

 

Most of B6’s staff expects industrial assets to have another monumental year in 2020. 85% of our survey takers predict that industrial dollar volume will rise again, even after reaching a record high last year.

 

About to fall

The asset class least likely to grow

Retail

 

Retail rebounded slightly in 2019, after four consecutive years of declining dollar volume across NYC. Will the turnaround continue in the new decade? Not so fast, says B6’s internal poll. Only 22% of our staff see dollar volume growing again this year.

“You’ve got to find creative ways to sell,” said B6’s Eugene Kim. “More and more, we’re seeing things like medical use taking over traditional retail space.”

Our Broker Predictions

While our internal survey paints a picture about what the entire team expects, each broker has his or her own perspective. So we interviewed six members of B6’s investment sales team to see what they’ll be tracking.

These are the storylines to watch in 2020.

Multifamily investors will shift their attention elsewhere.

 

In 2019, multifamily dropped to its lowest point as a share of transactions in at least a decade. Several of our brokers expect multifamily investors to return to the market this year — albeit with a partial focus on other asset classes.

“We’re already sensing that some multifamily investors are looking for opportunities in other areas, like in office space,” said Zach Redding.

We’re already sensing that some multifamily investors are looking for opportunities in other areas, like in office space.

Zach Redding

Director

Opportunity Zone Funds will start to put their capital to work.

 

The deadline to receive the full tax benefit for opportunity zone investing came and went on December 31. So it’s only natural that we’ll see OZ funds deploy capital in major ways this year, says B6’s Brian Whelan, particularly in Northern Manhattan.

Dollar volume growth in Northern Manhattan’s Opportunity Zones has trailed growth for the market overall. But that’s bound to change soon.

 

Total Investment in opportunity zoned areas of NYC, 2019

$4.8B

Brooklyn

$2.1B

Queens

$1.8B

Bronx

$1.0B

Manhattan

$.56B

Upper Manhattan

$.44B

A major global brand will land in Queens.

 

Amazon may have backed out of placing its second headquarters in Long Island City last year, but that doesn’t change the appeal of Queens as a landing spot for a global brand. As Eugene Kim notes, it still has the infrastructure and accessibility to welcome huge, corporate tenants.

Only two Fortune 500 companies — JetBlue and Altice — are currently based in Queens. Kim expects that number to increase in 2020.

Developers will venture into “pioneering” neighborhoods.

 

Development dollar volume was close to an all-time high in Brooklyn last year. With demand for development sites still high, Bryan Kirk and Rob Moore see Brooklyn developers shifting their focus to neighborhoods like South Bushwick and areas around Broadway Junction.

These sorts of neighborhoods offer significantly lower basis and more opportunity to capitalize on long-term neighborhood appreciation.

Bryan Kirk

Director

Rob Moore

Director

Methodology

All metrics presented in this report — Dollar Volume, Transactions, Price per Square Foot, and Cap Rate — are based on closed sales that occurred before December 31, 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)

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