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The New York Real Estate Outlook:
A Split Non-Decision

The report indicates that while commercial brokers are concerned about increasing tax rates, tariffs, and political instability, they remain positive overall in terms of market conditions.

by AmTrust Title
 

Without a doubt, it’s an absolutely fascinating moment for the New York real estate market, as indicators are pointing in multiple, and sometimes contradictory, directions. Due to these conflicting signals, discerning the outlook for the near and medium term presents a challenge. With this caveat in mind, let’s see what recent studies and leading prognosticators are telling us.

The Real Estate Board of New York (REBNY) recently released its Real Estate Broker Confidence Index for the second quarter of 2018. Interestingly, there was a divide between the expectations of residential and commercial brokers.

Overall, the Index for the first quarter of 2018 was 5.53 (the maximum index score is 10), a decrease of 0.25 since brokers were surveyed in the first quarter of this year. The report, however, shows a decidedly mixed result (excuse the oxymoron), as residential broker confidence decreased since Q1, while the Commercial Broker Confidence Index (CBCI) increased during the same period.

The CBCI in Q2 of 2018 was 6.43, an increase of 0.41 since brokers in this sector were surveyed in the first quarter, and the index grew by 0.49 year-over-year, up from 5.94 in the second quarter of 2017. The report indicates that while commercial brokers are concerned about increasing tax rates, tariffs, and political instability, they remain positive overall in terms of market conditions.

But REBNYs Residential Broker Confidence Index (RBCI), is not quite as upbeat about future market prospects. This index registered a weaker 4.63 in the current quarter, a decrease of 0.91 since brokers were surveyed in Q1 of 2018. Further, there was a significant decrease of 1.31 since Q2 of 2017. Significantly, the current quarter’s index is below five, which “indicates that brokers confidence related to the market is negative.” While residential brokers list the same concerns as their commercial peers concerning macro market conditions, they add that an oversupply of inventory in the market is an added source of apprehension.

In this regard, The Elliman/Jonathon Miller Residential Report for the second quarter of 2018 for Manhattan states that, “Uncertainty continues to play an important role in the current housing market…External influences outside of the city’s vibrant economy such as rising mortgage rates, the potential impact of the new federal tax law, and the unclear direction of the national economy have continued to remain a concern of market participants.” This uncertainty is evidenced in a “16.6% decline in sales from the same period a year ago.” And in their third quarter report just released (10/2/18), purchases dropped 11 percent from a year earlier. And listings piled onto the market at an even greater rate, climbing 13%.

But In line with the REBNY survey, the relative optimism of commercial brokers is also underpinned by second quarter statistics. REBUSINESS ONLINE observes that, “After a sluggish start to the year, the Manhattan office market has experienced a strong rebound.” In Q2 of 2018, more than 10 million square feet of commercial space was leased, representing the highest total since 2014. According to the REBUSINESS analysis, “Although the economy has been at peak for an unusually long time, the Manhattan office market has reached new highs. This represents an interesting exception to the norm, where real estate typically lags the economy, and it is good news for the market.” Additionally, “Manhattan’s average asking rent is sitting at an all-time high of $74.36 per square foot, up 3 percent year over year.”

Buttressing these statistics, according to The Real Deal, “Over 9 million square feet of new construction was completed in NYC in Q2 of 2018 in commercial and residential combined, with residential construction surpassing pre-recession levels.” Although this may seem a positive indicator, time and the state of the economy will determine how this might affect absorption rates, and therefore, rents.

But even in the Manhattan commercial market there are countervailing factors at play which should serve to temper enthusiasm. Although certain metrics indicate a burgeoning market, the net absorption rate offers a different perspective. By this barometer, net absorption is at negative 1.4 million square feet through Q2 of 2018 (indicating that supply is greater than demand). In line with this indicator, Manhattan’s availability rate inched up to 11.4%, the highest since 2014. Additionally, during the next year, or so, several 100,000-plus square foot blocks will hit the market, mostly stemming from new construction.

Cushman and Wakefield’s Market Overview Manhattan Q2 2018 sounds an optimistic tone. It reports that second quarter annual leasing of 9.1 million square feet is only the third time this number has been reached. “The pace of leasing increased across all three major markets, quarter over quarter, with midtown leasing climbing 5.9%; midtown south reached its highest quarterly total on record. {And} downtown leasing more than doubled in Q2 and marked a 45.7% increase compared to the prior five-year quarterly average.” Yet Cushman too calls for caution: “Despite the strong pace of leasing, overall vacancy increased 50 basis points during the quarter to 9.2%...”

In sum, we can say that going forward, the market outlook lacks clarity, and that near and mid-term macro-economic trends and industry specific metrics will hopefully yield a clearer view.