2019 is on track to be a down year for investment volume in the NYC property market. Total dollar transaction volume is pacing to be around 15% lower than it was in 2018 across all property types.

The recent rent stabilization laws and concerns over a broad economic weakening weighed on investors’ minds in the second half of the year when the majority of the drop-off in volume occurred. Activity in 1H2019 was down -3% YOY with the same period in 2018, while 2H2019 is on track to finish nearly 26% down YOY.

Deal count also declined significantly in the second half of 2019. In full year 2018, there were 574 transactions per quarter; the current pace in 2019 is more than 100 short of 2018 levels, at 462 – a 20% decline.

Multifamily

Perhaps unsurprisingly – the largest contributor to the recent drop off in activity was seen in the market for multifamily. The “Housing Stability and Tenant Protection Act”, signed into effect in June 2019, hit the multifamily market hard.

Permanently codifying the Rent Stabilization and Rent Control laws and preventing landlords’ ability to challenge renewal rents, the market expectation was that these laws would negatively impact the value of multifamily buildings across the city. The new laws appear to have not only hurt the volume of transactions, but also the count, and price per unit.

Looking across both walk-ups and elevator property sales across all the boroughs, 3Q2019 sales were down 56% YOY and 4Q2019 sales are on track to be down an estimated 32% YOY. If the year finishes inline with the 4Q estimate, the total multifamily market is set to be down 27% YOY. After deal count declined by 33% in 3Q2019 vs 3Q2018, it is on pace to finish 4Q2019 55% lower than 4Q2018.

Of Note:

    • Looking across the boroughs, Queens stands out as the least harmed at an estimated total volume decline of 16% YOY, for the full year. The hardest-hit borough is the Bronx, with an estimated 34% YOY decline.
    • Manhattan elevator buildings which have seen a YOY increase in total transaction volume in the 4Q2019 will help the sub-property type outperform the walk-up apartments across the city. Despite transaction volume being up for elevator buildings, the quarterly deal count has dropped for the last three quarters, as the transactions getting done have been higher quality.

“Hardest Hit” Neighborhoods

(neighborhoods which experienced drops in total transaction volume, total deal count, and average price)
Bronx: Belmont, Concourse, Fordham, North New York, Williamsbridge
Brooklyn: Bushwick, Crown Heights, Flatbush, Prospect Heights
Manhattan: Central Harlem, Hamilton Heights, Midtown East, Midtown West, Upper West Side, Yorkville
Queens: Corona, Elmhurst, Sunnyside

“Hardly Hit” Neighborhoods

(neighborhoods which experienced increases in total transaction volume, total deal count, and average price)
Bronx: Bronxwood
Brooklyn: Bath Beach, Dyker Heights, Midwood, Ocean Parkway
Manhattan: Soho, West Village
Queens: East Flushing, Long Island City, Rockaway

Multifamily in 2020

Looking forward to 2020, the recently enacted laws will continue to affect the NYC multifamily markets. With limited ability to increase rent, landlords are less inclined to invest in rent-stabilized properties – and while the fears of properties falling into disrepair may be a bit overstated, the overall quality of the NYC multifamily stock will likely deteriorate as a whole.

Valuations on rent-stabilized and rent-controlled units will likely decline, along with transaction volumes and counts. The construction pipeline will likely decline as well. Meanwhile, the free market rental units and buildings will likely see increased valuations and will benefit from the tight supply.

Industrial

2019 is shaking out to be another solid year for NYC industrial properties. Despite the final quarter of the year being slow, in terms of transaction volume and deal count, the first three quarters of the year make up for any recent market breathers.

Looking across both factory and warehouse property sales across all the boroughs, 3Q2019 sales were up 230% YOY and 4Q2019 sales are on track to be down an estimated 52% YOY.

Despite these large swings QOQ, the 2019 full year transaction volume is on pace to finish 35% above 2018 total transaction volume. Deal count was up by 21% in 3Q2019 vs 3Q2018, and is on pace to finish 4Q2019 55% lower than 4Q2018. Full year deal count is anticipated to finish up 9% YOY, at 247.

Of Note:

  • The largest local market, Brooklyn, is on pace to have a slightly down year with an estimated drop in total transaction volume of 14%, though a slightly higher deal count. The second largest market, Queens, also is on pace to see a drop of 15% in total transaction volume in 4Q2019, however, give the surge in preceding two quarters, may see a full year total volume increase of 86% YOY in 2019.
  • Pricing for factory product remained relatively flat over the year (estimated to see a 3% increase from 2018, to an average of $618/sf across all boroughs). Meanwhile, the average price of warehouse product is on pace to end the year at $991/sf across all boroughs, up 6.4% on the 4Q2018 $931/sf average.

“Hardest Hit” Neighborhoods

(neighborhoods which experienced drops in total transaction volume, total deal count, and average price)
Brooklyn: Greenpoint, Red Hook, Williamsburg
Queens: Corona, Elmhurst

“Hardly Hit” Neighborhoods

(neighborhoods which experienced increases in total transaction volume, total deal count, and average price)

Bronx: Crotona Park East, Hunts Point, Mott Haven
Brooklyn: Bath Beach, Brownsville, Bushwick, Gowanus
Queens: Astoria, Glendale, Springfield Gardens, Woodhaven

Industrial in 2020

Looking forward to 2020, while e-commerce and New Yorkers’ engrained impatience will continue to support the thesis for last-mile warehouse demand, the current breather in the industrial market may last a bit longer – as concerns over a broader economic cool-down permeate investors’ minds. NYC’s population and economy will likely serve it well and it will be seen as a bell-weather and somewhat defensive location for investors if a recession were to appear. However, the recent hit to the multifamily market will continue to affect the market as a whole negatively.

 

Office

Despite the strong national and local labor market, results from the NYC office market in 2019 were mixed.

Looking across office property sales across the boroughs, 3Q2019 sales were up 53% YOY, but down 12% from 2Q2019. 4Q2019 sales are on track to be down an estimated 50% YOY.

The 2019 full year transaction volume is on pace to finish 18% below 2018 total transaction volume. Deal count was up by 12% in 3Q2019 vs 3Q2018, and is on pace to finish 4Q2019 24% lower than 4Q2018. Full year deal count is anticipated to finish up 12% YOY, at 141.

Of note:

  • The largest local market, Manhattan, is on pace to have a difficult down year with an estimated drop in total transaction volume of 20%, though a slightly higher deal count at 51. Despite its relative size, the Bronx saw a flurry of activity in the first half of the year, which made it’s 2019 stand out when compared to 2018.
  • Pricing for office space remained flat in 3Q2019 (up 1% YOY to $632/sf), however, is on pace to drop an estimated 8% on a full year basis.

“Hardest Hit” Neighborhoods

(neighborhoods which experienced drops in total transaction volume, total deal count, and average price)

Brooklyn: Sheepshead Bay
Manhattan: Midtown West

“Hardly Hit” Neighborhoods

(neighborhoods which experienced increases in total transaction volume, total deal count, and average price)

Brooklyn: Crown Heights
Manhattan: Financial District, Greenwich Village, Midtown East, West Village,

Looking forward to 2020, office space in the city will likely continue to move sideways, as fears of an economic slowdown factors into valuations.