The commercial pricing
after-party

Average investment sales prices climbed slightly in the first half of 2017, even as total sales volume dropped

Oct.October 01, 2017 01:00 PM

Bob Knakal

Commercial real estate sales in the five boroughs have seen a significant drop-off as buyers sit on the sidelines waiting for prices to fall. But at a time when banks are eager to refinance assets and few owners are pressured to trade, average pricing on closed deals continues to rise — a sign that some sellers are feeling all the more confident.

The average price on commercial sales in the first half of 2017 climbed nearly 3 percent year-over-year, to $570 per square foot, according to Cushman & Wakefield. That increase came as the NYC market recorded a total of 1,877 property trades for a combined $16.4 billion — down from the 2,397 properties that sold for $32.9 billion in the same period last year.

But commercial pricing saw a slower rate of growth than the more than 12 percent increase between the first halves of 2015 and 2016. And the upward pressure this time around has mostly benefited multifamily and mixed-use assets overall.

“I believe we’re 25 months into a correcting market,” said Cushman’s Bob Knakal. “During the recession, values fell in every sector significantly. Now, only some product sectors are seeing values fall.”

Walk-up multifamily buildings traded at an average $447 per foot during the period — a year-over-year increase of roughly 16 percent from 2016 and 31 percent from 2015.

And mixed-use properties saw their average pricing rise to $534 per foot in the first half of the year, up about 5 percent from 2016 and 11 percent higher than the same period two years ago.

Most other commercial asset classes in the city have seen pricing adjust in the past year or more.

The overall cost of development sites has been on the decline for nearly two years now, sources said, due to the slowdown in demand for luxury condos and the expiration of the 421a tax break in January 2016. The average price for buildable land through the first half of 2017 was $232 per foot — down just over 3 percent from the same period last year and a hefty 19 percent from the first half of 2015, according to Cushman. Knakal said he thinks actual land values have fallen even lower, noting that the figures on pricing only reflect the few deals where buyers and sellers could agree on how much to pay.

Hotels are also taking a hit, mostly from the influx of new projects that have come online in recent years. In the first half of this year, hotel properties sold for an average of roughly $336,000 per room, according to the hospitality consulting firm HVS. That figure is down nearly 27 percent from the average price per room in the first half of 2016, and down almost 56 percent from two years earlier. (Cushman does not track hotel sales data due to the relatively small number of deals overall.)

HVS vice president Chris Fernandes said he thinks actual values have dropped more moderately than the figures show. Average pricing, he said, can be impacted on the types of hotels trading — such as luxury vs. limited service. “It’s very difficult to just weigh everything together,” Fernandes said. “Values might be falling slightly, but we see them flattening out over the next two years and rebounding in 2019 or 2020.”

Office properties, meanwhile, have started to see pricing fall more recently. The average price per square foot for buildings in that sector climbed nearly 7 percent, to $766 per foot in the first half of 2016, according to Cushman. But, in the first half of 2017, the figure dropped nearly 12 percent, to $675 per foot.

Similarly, New York retail, amid its widely publicized struggles, saw pricing turn this year. Retail properties traded at an average price of $1,051 per foot during the first half of 2017 — down almost 10 percent year-over-year. That’s a dramatic change from the 32 percent rise the sector saw in the same period last year.

Savills Studley’s Woody Heller said retail properties will see pricing correct more than any other asset class in the next year. “Office rents haven’t gone up sixfold over the last 20 years. So that makes it way easier to survive a change,” he said. “I think retail’s in for a dramatic adjustment.”

(To view thousands of commercial sales transactions in TRData’s Deal Sheet — including those brokered by Bob Knakal — click here.)


Related Articles

arrow_forward_ios
Matt Lauer exposes Hamptons estate to the market
Matt Lauer exposes Hamptons estate to the market
Matt Lauer exposes Hamptons estate to the market
 Fredrik Eklund and the property (Getty, Steve Frankel)
Fredrik Eklund lists Bel Air mansion for rent as family moves to “forever home”
Fredrik Eklund lists Bel Air mansion for rent as family moves to “forever home”
Gordon Ramsey and his Lucky Cat restaurant (Lucky Cat)
Gordon Ramsay to open first South Florida restaurant in Miami Beach
Gordon Ramsay to open first South Florida restaurant in Miami Beach
One New York Plaza and 60 Broad Street (Brookfield, Google Maps)
Manhattan office rents hit 4-year low as availability remains record-high
Manhattan office rents hit 4-year low as availability remains record-high
The rise of e-commerce, fueled by the pandemic, has created unprecedented demand for cardboard-producing facilities. (iStock)
Cardboard demand could fuel an industrial real estate boom
Cardboard demand could fuel an industrial real estate boom
MSCI CEO Henry Fernandez and Real Capital Analytics founder Robert White (MSCI)
MSCI to acquire Real Capital Analytics for $950M
MSCI to acquire Real Capital Analytics for $950M
Gov. Andrew Cuomo and Mayor Bill de Blasio (Getty, iStock)
De Blasio bumps up city vouchers as state increase stalls
De Blasio bumps up city vouchers as state increase stalls
Donald Trump and the Trump International Hotel & Tower in Chicago (Getty, iStock)
Donald Trump is owed $1M tax refund on Chicago skyscraper
Donald Trump is owed $1M tax refund on Chicago skyscraper
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...