The peak of this high interest rate era may be nigh, but its impact on investment sales will reverberate for years to come.
Investment sales in New York City dropped at least 36 percent year-over-year in the first half of 2023, Crain’s reported. The data comes courtesy of Ariel Property Advisors, which added that the dollar volume of investment sales was nearly half of what it was in the same period last year.
There was some improvement from a challenging first quarter to the second. In the multifamily market, the dollar volume of deals between quarters more than tripled, from $1.1 billion in the first quarter to $3.9 billion in the second quarter.
In general, however, asset classes didn’t see the same volume of investment sales activity in the first half of the year compared to a year ago, when the Federal Reserve was only beginning its interest rate hike to battle inflation. The scorecard for the various asset types: industrial (down 63 percent), special purpose (down 52 percent), office (down 48 percent), multifamily (down 41 percent) and retail/hotels (down 36 percent).
“Sellers who do not need to sell today are just not,” Ariel Property Advisors founder Shimon Shkury told the outlet.
The sharp rise in interest rates has slowed transaction activity in markets across the nation, and in New York, the lapse of the 421a tax break has specifically hindered multifamily transactions and development.
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A better buying and selling environment may be on the horizon. Inflation slowed to 3 percent last month, its slowest rate in two years, which could affect the result of the Fed’s meeting this week over a possible interest rate hike after taking the month off from raises.
And while the legislature couldn’t figure out a replacement for 421a one year after its lapse, Gov. Kathy Hochul launched a workaround in Gowanus last week, though its impact may be limited.
— Holden Walter-Warner