The Real Deal New York

Manhattan office investors’ confidence rising despite signs of slowdown in other sectors: PwC

Survey finds 67% of investors think it’s a sellers' market, up from 50% just three months ago

March 16, 2016 02:00PM
By Rich Bockmann

PricewaterhouseCooper's Byron Carlock with 787 Seventh Avenue and 1285 Sixth Avenue

PricewaterhouseCooper’s Byron Carlock with 787 Seventh Avenue and 1285 Sixth Avenue

The luxury residential market is slumping. The retail market is cooling. But investors in the Manhattan office sector still think it’s a great time to be selling. In fact, that sentiment is on the rise.

According to Big Four accounting firm PricewaterhouseCoopers, 67 percent of private real estate firms, investment bankers and pension and investment advisers surveyed in the first quarter of this year believe Manhattan office is a sellers market. That’s up from 50 percent of investors at the end of 2015.

“Many investors in the Manhattan office market continue to closely monitor the U.S. and global economies for signs of slowdowns and turmoil as such events could have significant negative effects on the local office market’s investment environment,” PwC’s study found. “For now, however, most of our surveyed investors . . . view this market as favoring sellers.”

The remaining 33 percent of respondents believe the market to be at an equilibrium between sellers and buyers.

Manhattan leasing activity exceeded 2 million square feet in each of the first two months of 2016. The 4.4-million square feet leased represents a 3.2-percent jump over the same period in 2015. Overall asking rents in Manhattan checked in at $72.80 a square foot, over the Feb. 2015 figure of $69.46 per square foot.

Byron Carlock, head of Pricewater’s real estate practice, said that across the board transactional volume remains strong. Last month, California pension fund CalPERS closed on the $1.9 billion purchase of 787 Seventh Avenue from AXA Financial. Scott Rechler’s RXR Realty is also in contract to buy 1285 Sixth Avenue from AXA for $1.7 billion, which may close in the first quarter.

“The expectation of a slowdown has people looking at every statistic expecting a slowdown,” Carlock said. “If there is a downturn, the data is not showing it yet.”

Bloomberg reported on Tuesday that traditional lenders are pulling back on funding “risky” commercial real estate projects largely due to concerns over global economic trends, oversupply and developers with limited equity. But at the same time, large transactions are still getting done.

Chinese insurer Anbang plans to buy the 16-property Strategic Hotels & Resorts portfolio from the Blackstone Group for $6.5 billion. And a consortium led by Anbang earlier this week made an unsolicited bid to purchase Starwood Hotels and Resorts.

Starwood reached a merger agreement with Marriott Hotels in November that would require Starwood to pay a $400 million breakup fee if it walks away from the deal.

“I’m unable to think of another transaction with a breakup fee as large as $400 million,” Carlock said, “which in my opinion points to the attractiveness of quality real estate and hospitality companies.”