Today’s market is most confusing in nearly 20 years: Knakal

Investment sales show classic signs of transition, yet low interest rates prodding market along “like a drug”

Jul.July 19, 2016 02:09 PM

If you’re not confused, you’re not paying attention.

That’s the takeaway from Cushman & Wakefield TRData LogoTINY investment sales chairman Bob Knakal TRData LogoTINY at the halfway point of the year.

Not since 1998, when the city’s real estate market looked to be in its last inning but then ran on for another nine years, has Knakal been so unsure of the direction of a market.

“I am confused,” the veteran broker said Tuesday morning at Cushman’s second-quarter market presentation. “I hope we have more clarity by the end of the year, because I’m no more certain where we’re going than I was at the beginning of the year.”

At the rate the city’s investment sales market has been going, the number of properties projected to sell by the end of 2016 stands at just 4,514, about 13 percent lower than 2015.

Price per square foot, on the other hand, is projected to rise 23 percent in Manhattan to $1,630 (or, 4 percent to $1,384 if two outlier deals from the first half are eliminated) and 13 percent to $375 in the outer boroughs.

These are two classic signs, Knakal said, of a market in transition.

“The reason volume drops and prices go up is because the only people transacting are the people who are getting their price,” he said. “Sellers who are not getting their price simply don’t transact.”

The city’s investment sales market, he said, went into correction nine months ago. Land and hotel properties, which are the asset types most reactive to changes in the market, are struggling. Office and multifamily properties are doing well and retail is somewhere in the middle, he said.

Yet last month the Federal Reserve Bank decided not to raise interest rates, citing “headwinds blowing on the economy,” and is sending mixed-messages about raising rates in September.

Yet despite the signs that market is turning, factors like geopolitics, macroeconomics and Brexit are putting downward pressure on interest rates that give the current cycle a feeling of sustainability.

“Interest rates are like a drug. Interest rates being low for such a long period of time is terrible for the United States. It’s terrible for our economy, but it’s a great fix for real estate,” he explained. “I’ve always said, most of my clients are junkies and I just provide clean needles. What’s happening in the economy is really going to keep rates low for an extended period of time.”

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