The Real Deal New York

Commercial market report

From climbing office concessions to a multifamily sales rebound, a look at the biggest trends
By Meenal Vamburkar | June 01, 2018 10:00AM

Multifamily sales reach highest level since 2016

New York’s multifamily sales market notched its strongest month in more than a year. The dollar volume of transactions crossed the $1 billion mark in March, the highest level since hitting $2.3 billion in December 2016, according to data from Ariel Property Advisors. Manhattan deals accounted for a bulk of the total, with almost $600 million in property trades. The largest deal was A&E Real Estate Holdings’ $287 million buy of Stonehenge Village on the Upper West Side. Brooklyn and Queens saw $190.4 million and $68.1 million in sales, respectively. Overall, there were 46 sales spread across 84 buildings. The uptick comes after the market slumped last year — with dollar volume hitting the lowest level since 2011 — and multifamily portfolio trades all but vanished. The market has overcome last year’s uncertainty about tax policy and the economy, said Michael Tortorici, executive vice president of investment sales at Ariel. “A lot of it has to do with having a clearer picture of where the macroeconomic environment is,” he said. “I see this being a steady year, an improved year from a sales volume perspective.”

NYC remains priciest place to build

Construction costs may have cooled slightly last year, but New York City is still the most expensive place in the world to build. The price tag? An average of $362 per square foot, according to Turner & Townsend’s 2018 International Construction Market Survey. That marks a 3.5 percent year-on-year increase from 2016, and another 3.5 percent hike is expected in 2018. High-rise office buildings were among the priciest to build, at an average $565 per square foot, while high-rise apartment buildings cost an average $302 per square foot. San Francisco was the second priciest city, with Hong Kong following in third place. Construction spending fell 12 percent last year. But the lack of skilled labor drove up costs: The average hourly wage for union labor was $98.30 in New York, the second highest average in the world. “The industry skills shortage is one of the pivotal drivers of rising costs, felt at both a local and global levels,” said John Robbins, Turner & Townsend’s managing director in the U.S. 

The Bronx rides out development wave

The Bronx saw 16.3 million square feet of new development last year — the most the borough has seen in nearly a decade. The dollar volume of investment saw an 18 percent drop from 2016, totaling $2.7 billion last year, according to a study from the office of Bronx Borough President Ruben Diaz Jr. Residential projects accounted for roughly 85 percent of investment activity, with a total of 7,379 new units. Trinity Financial’s 277-unit affordable housing project at 425 Grand Concourse was the largest in the borough last year. The Mott Haven site, which is being developed in partnership with MBD Community Housing, will also have a charter school, super market, medical facility and community space. And the Bronx’s industrial market has recently seen an uptick in activity. Innovo Property Group and Square Mile Capital are razing the Whitestone Multiplex Cinema site to make way for an 840,400-square-foot distribution center. FreshDirect is planning to open its 650,000-square-foot offices and distribution center in the borough later this year. And online retailer Jet.com has a 205,400-square-foot lease for the entire warehouse at 1055 Bronx River Avenue.

Office market concessions climb in Manhattan

Concessions on Lower Manhattan office space jumped 42 percent last year, to $134 a square foot, according to Cushman & Wakefield. The rise in incentives in some gateway markets — including Manhattan and San Francisco — has been faster than the national average, the firm said in its Space Matters report. Demand for office space is likely to decelerate as job growth slows. And the amount of new construction also dictates how generous landlords are with concessions. “There’s been a little bit of a slowdown in absorption, and there’s a decent amount of construction in bigger markets,” said Cushman & Wakefield’s David Smith. “It may not increase at exactly the same pace, but it will continue.” Midtown saw a 33 percent jump in concessions, while Brooklyn’s office market saw a 12 percent increase in concessions, to $35 a square foot.