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Key takeaways:

It was the best of times, it was the worst of times—a fitting description for New York City’s commercial real estate market in 2016. Though leasing activity in Manhattan dropped significantly in the midst of political and economic uncertainty, according to data from JLL, this did not put a damper on office sales in NYC. Though activity cooled down from the highs of 2015, investment sales volume remained strong in 2016, surpassing the levels of 2012-2014.

Our study analyzed commercial office transactions of more than $5 million and office buildings and spaces of over 5,000 square feet, from 2012 to 2016, based on Yardi Matrixand PropertyShark sales and proprietary research. The sales included were recorded up until Jan. 25, 2017, and we excluded ownership stake transactions.

Investor Appetite Still High—Sales Volume Tops $21B in 2016

128 office buildings changed hands in 2016 for a total of $21.1 billion—a downtick of 7% year-over-year in sales volume. And though the number of transactions dropped below the level of the previous two years, the overall sales volume in NYC remained above the previous 4-years average—and more than twice the number recorded in 2012. More than 22 million square feet of office space traded in 2016, a 3% drop year-over-year. Investors were not deterred by last year’s political volatility, and 2016 turned out to be a very fruitful year for NYC in terms of office sales activity.

Price per Square Foot Continues Upward Trend in Manhattan, Reaches 5-Year Peak

Spurred on by strong demand for high-quality office space and healthy market fundamentals, the average price per square foot for an office building in Manhattan has been steadily climbing over the past 4 years. The average price reached $1,347 per square foot in 2016, a 7% uptick year-over-year and 40% higher than the price recorded in 2012. Midtown Manhattan boasts the highest price per square foot in the borough—54 office assets traded at an average of $1,531 per square foot, a 28% increase year-over-year. By comparison, the average price per square foot in Downtown Manhattan decreased 32% in 2016, resting at $935 per square foot–$441 shy of the average recorded in 2015.

Though it’s no surprise that Manhattan remains the main target for office investment in New York City, other boroughs also managed to attract a good deal of capital in the past year. In Queens, 13 office properties changed hands in 2016 at an average price of $762 per square foot—a 28% increase year-over-year. The average price per square foot in the borough rose 116% over the past 4 years, a sign that some investors are shifting their focus from over-priced Manhattan towards the outer boroughs.
By comparison, the price per square foot for Brooklyn office buildings decreased 16% in 2016 to $690 on average, after peaking at $819 in 2015. Office sales activity cooled down in the borough last year, with 13 assets trading hands—down from the previous year’s total of 21.

Monthly Sales Volume Reaches $4.4B in June

Office investors started the year in full force, with over $2.3 billion worth of properties changing owners in January. However, June proved to be the busiest month for office investment in 2016—18 assets traded for a total of $4.4 billion. Two of the year’s biggest deals also closed in June—the $1.7 billion sale of 388-390 Greenwich St. and the $914 million sale of the remaining 49% stake in 1211 Avenue of the Americas.

NYC Market Attracts Record Foreign Capital in 2016

2016 also marked a busy year for foreign investment in NYC, with over half of the 20 largest office sales of 2016 driven partially or exclusively by foreign capital. According to the Financial Times, quoting commerce ministry data, Chinese companies’ overseas purchases topped 2015’s record of $121 billion for non-financial outbound investments, reaching a total of $146 billion in the first 10 months of 2016.

China reached a record of $33 billion in overseas commercial and residential real estate investment in 2016–a nearly 53% increase year-over-year, according to JLL data. Investment in land, offices and hotels accounted for 90% of all Chinese outbound capital in the past 3 years, while the hospitality and industrial sectors marked the largest increase in 2016.

The year also proved fruitful for AXA Financial, the American arm of Paris-based insurance firm AXA, which cashed in a total of $3.6 billion on the sales of 787 7th Ave. and 1285 Avenue of the Americas—two of the largest office deals to close in NYC in 2016.

Largest Office Sales of the Year—787 7th Avenue Commands $1.9B

787 7th Avenue (via 787nyc.com)

787 7th Avenue (via 787nyc.com)

The year’s biggest office deal closed in January, when CalPERS shelled out in excess of $1.9 billion to acquire the AXA Equitable Center at 787 7th Ave. in Manhattan. One of the largest investments in the pension fund’s history, the sale closed Jan. 27 at $1,179 per square foot.

There were 7 office sales that topped the $1 billion mark in 2016, and 12 that fetched a sale price exceeding $500 million. While 19 of the top 20 largest office deals of the year closed in Manhattan, one Brooklyn sale landed the 17th spot: the Jehovah’s Witnesses’ Watchtower Building sold for $340 million in August.

Manhattan remained the destination of choice for office investment in 2016—100 properties changed hands in the borough, out of a total of 128 sales overall. Nonetheless, the outer boroughs managed to draw in $769 million in investments, with 15 assets trading in Brooklyn and 13 assets in Queens.

To see the full list of New York City office sales in 2016, download raw report data.

Fifth Avenue Sale Prices Top $5,000 per Square Foot

693-695 Fifth Avenue (via PropertyShark)

693-695 Fifth Avenue (via PropertyShark)

Thor Equities closed on a major deal in the summer, selling its office and retail asset at 693-695 Fifth Ave. for $525 million–nearly four times what it paid for the property back in 2010. The deal marked one of the highest per square foot prices of the year in the city: the 20-story building was acquired by French billionaire Marc Ladreit de Lacharrière, chair & CEO of holding company Fimalac, for $5,182 per square foot.

570-574 5th Avenue (via PropertyShark)

570-574 5th Avenue (via PropertyShark)

By comparison, the highest price recorded in 2015 was $5,155 per zoning square foot, also on Fifth Avenue—SL Green Realty sold 570 and 574 Fifth Ave. for a total of $125 million. The Central Midtown assets total 24,327 square feet and were acquired by Extell Development, which intends to demolish them to make way for a major development in Midtown’s Diamond District.

 

What’s Next? NYC Projects in the Works

Click here to read more directly on Commercial Cafe

 

 

Note: While we have made every attempt to ensure that the information included herein has been obtained from reliable sources, we are not responsible for any inaccuracies or omissions, or for the results obtained from the use of this information. 

 

Source: Getty Images


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Johannah Cantwell

Social Media Manager for all MIPIM and MAPIC real estate events worldwide.

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