Block by Block: 1Q19
1Q 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.
Overview
The investment sales market in 2019 got off to a slow start amid uncertainty in the broader economy and speculation that the New York state Senate will implement major rent reforms this summer.
Here are our key takeaways from the first three months of the year:
- On an annualized transactional basis, 2019 is on pace to be the lowest tally in eight years.
- Development investment across New York tailed off in 1Q19, though development as a share of total dollar volume increased to record levels in 2018.
- The Multifamily sector is lagging due to political uncertainty, but activity will increase in the second half of the year if news from Albany is positive for landlords.
- Transaction velocity and development activity both suggest a shift in demand from Brooklyn to Queens.
A Sluggish Start to 2019
The first quarter saw 440 transactions worth $7.3B in activity across Manhattan, Northern Manhattan, Brooklyn, Bronx and Queens, down 38% in transaction volume from 1Q18, which saw 713 transactions for $9.2B in consideration.
Brooklyn and Queens led the way in transactions for 1Q19 with 147 and 126, respectively, making up 62% of total volume. Yet, the 147 transactions closed in Brooklyn was 42% below the five-year average and 47% below 1Q18. While all markets trended below their five-year average in 1Q19, Queens outperformed other markets by keeping a steady transaction volume. Activity in Queens amid an otherwise slow quarter demonstrates the continued shift from Brooklyn to Queens.
Citywide, price per square foot for all property types increased 14% to $661 per square foot from this time last year and 5% from all of 2018. Northern Manhattan saw the largest increase in price per square foot per market with an increase of 14% from 2018. The office sector, meanwhile, saw an increase of 26% from 2018, representing the largest increase for a property type.
Explore other trends at the market, submarket, and property type level below.
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Dollar Volume
Quarterly totals, 2009—2019
Dollar Volume
Transactions
Quarterly totals, 2009—2019
Transactions
Price per Square Foot
Quarterly mean $/SF, 2009—2019
Price per Square Foot
Mouseover a line to show values
Shift in Multifamily Investor Demand
A shift in investor demand since 3Q18 to product such as 2-4 unit residential properties and mixed-use assets saw considerable reduction in transaction volumes for the multifamily sector. Elevator properties in 1Q19 totaled 21 transactions for $807 million, while walk-up multifamily properties saw 106 transactions for $522 million sold citywide. Together, both property types saw a 48% drop in transactions and a 43% reduction in dollar volume from 1Q18. Overall transaction flows are down 24% from their five-year average.
The reduction in transaction flows from these property types is due in part to uncertainty in the state capitol. With New York’s rent stabilization laws up for renewal in June, properties containing at least 50% free market units represented 45% of all multifamily sales this quarter. A 21% jump in price per square foot from 2018 for free market or renovated assets clearly shows a premium for these properties.
Spotlight: The Trajectory of Development
Beginning after the last recession, properties acquired for development have taken a more prominent share of total transactions and dollars than ever before, permanently altering the physical landscape of New York City and the dynamics of the real estate market within the most recent property cycle.
The share of development sites relative to the entire property market grew an average of 19% year-over-year from 2009—2015, culminating in an all-time city record of $13.8B in activity in 2015 or 18% of total activity. Since the height of the development sales market in 2015, the demand for development sites has been uneven, but rebounded in 2018, with $7.4B in dollar volume across New York City. That total was the third-highest in the last decade and represented an increase of 88% year-over-year.
Those numbers are down a bit as we start 1Q19, though price per buildable square foot continues to increase.
A Regression in Development
The growth of development sites last year was particularly notable because it happened in an otherwise flat market. Annual dollar volume in 2018 witnessed a net decline across other property types such as office and retail, while development alone grew $3.5B. This represented over 20% of all dollar volume in 2018.
So far in 1Q19, development’s share has regressed slightly from last year’s highwater mark. Development investments continue to sell in the outer boroughs at an impressive pace, accounting for 93% of development transactions in 1Q19. Through 1Q19, however, dollar volume dropped to $1.02B for the quarter, 10% lower than 2018. Transactional velocity saw the steepest decline, with only 41 transactions in 1Q19. That ranks as the lowest number of development transactions in a first quarter since 2011.
Development’s Share of NYC Dollar Volume Has Been Growing
Annual share of dollar volume by market, 2009—1Q 2019
Markets
Mouseover a segement below to see values
Where is Development Happening?
Even as development sales slowed somewhat in 1Q19, it remains an integral part of the investment landscape in New York City. So which areas of the city are enjoying a development boom?
Brooklyn continues to account for the largest share of development transactions, with 141 transactions in 2018. Yet, Brooklyn’s share has actually declined over the last five years as development interest shifts to Queens and the Bronx. You can see this on a submarket level as well; while development transactions have declined for three consecutive years in Williamsburg, development activity in Astoria more than doubled last year.
Data also suggests that it remains significantly more expensive to develop in Manhattan than other parts of the city. The price per buildable square foot in eleven Manhattan neighborhoods — including SoHo ($1,259), Midtown ($912), and Greenwich Village ($799) — exceeded the $/BSF seen across other submarkets in 2018. Sunset Park, Brooklyn registered the highest $/BSF in the outer boroughs last year ($550) and also saw the second-highest year-over-year growth citywide.
Explore the map below to see shifts in development activity at a granular level. Development Sites Annual $/BSF, by Submarket Fewer More 2013
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 March 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:
- Walk-up: C1, C2, C4, C5, C9
- Elevator: D1, D2, D3, D5, D8, D9
- Mixed Use: K4 and all “S” classes (S0, S1, S2, S3, S4, S5, S9)
- Retail: select “K” classes (K1, K2, K3, K5, K6, K9) / select “R” classes (R5, R7, R8, RK)
- Office: All “O” classes: (O1, O2, O3, O4, O5, O6, O7, O8, O9) and RB
- Industrial: All “E” classes (E1, E3, E4, E6, E7, E9), all “F” classes (F1, F2, F4, F5, F8, F9) and RW
- Development: 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)
Disclaimer
B6 Real Estate Advisors, LLC © 2019. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice. It is the responsibility of the prospective purchaser to make an independent determination as to the condition of the property (or properties) in question and prospective purchasers cannot rely upon any representation made by B6 Real Estate Advisors, LLC or any personnel associated with B6 Real Estate Advisors, LLC.