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The Most Expensive Office Market in the US Fizzles

by Wolf Richter, Wolf Street:

A few “success stories” overshadow “very anemic activity.”

Companies needing to lease office space in New York City get this piece of advice by global real-estate service provider Savills Studley in its Q4 report:

“Companies need to drown out the noise and ignore real estate’s own version of fake news – the threat that demand is as strong as ever and rent will always rise.”

Turns out, despite the hype of the industry, the vaunted and ludicrously expensive office space market in New York City peaked somewhere between the end of 2014 and mid-2016, both in terms of sales and leasing.

he number of sales of office buildings in 2016 valued at over $5 million plunged 16% from a year earlier to just 128 buildings, the lowest since 2013, according to a report by CommercialCafé, a sister company of Property Shark (transactions recorded up until Jan. 25, 2017):

In dollar terms, transactions of office buildings dropped 7% year-over-year to $21.1 billion. In terms of square feet, transactions dropped 3% to 22.2 million square feet, just barely above 2013 (22.1 msf):

Even as volume declined, the average price per square foot rose 7% from a year ago to $1,347 per square foot – up 40% from 2012. Could that be the reason for the decline in sales volume? That it’s getting too expensive and demand is drying up at these prices as leasing activity, which makes all this possible, is stalling (more on that in a moment)?

But wait – real estate is local…

In Midtown Manhattan, where 54 office buildings changed hands in 2016, the average price soared 28% year-over-year to $1,531 per square foot.
In Downtown Manhattan, the average price plunged 32% to $935 per square foot (from $1,376 in 2015).
In Queens, the average price of the 13 buildings that sold during the year soared 28% to $762 per square foot and was up 116% since 2012.
In Brooklyn, where the number of transactions plunged 38% to just 13, the average price dropped 16% to $690 per square foot.

Getting dizzy? It’s mixed, as they say.

Who was buying? Over half of the 20 largest office sales in 2016, according to CommercialCafé, were “driven partially or exclusively by foreign capital.”

Read More @ WolfStreet.com

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