NEW YORK, APRIL 30, 2015
– Manhattan continued to record tremendous office sales activity in the first quarter of 2015, with 15 trades totaling $5.2 billion, signaling the most robust first quarter since the market’s peak in 2007, according to new research from Colliers International
tracking investment sales over $20 million. Core properties, many with high-value retail components, dominated the market.
Sales activity may be even stronger in the second quarter of 2015, with nearly $8 billion of transactions under contract. Given this momentum, coupled with rising rental rates, healthy employment, favorable financing terms, intense investor demand, and a lack of value-add opportunities, Colliers International predicts that Manhattan sales volume for the year could hit the highest total since its peak of $30.3 billion in 2007.
The average Manhattan office sale price reached $970/sf in the first quarter of 2015, which surpassed the market peak of $838/sf, the full-year average for 2008. Pricing levels for sales in Midtown also reached new heights, with three Class A transactions averaging $1,447/sf in the first quarter, 38.7 percent above the previous high of $1,043/sf completed last year.
The first quarter also saw five Class B Midtown sales that averaged $698/sf, the second highest average price/sf on record behind 2009, and a significant increase from the $615/sf annual average last year. The majority of the first quarter Class B deals involved buildings geared toward TAMI tenants that are being priced out of Midtown South locations.
With capital flowing into Midtown South, the market registered two Class A sales during the first quarter of 2015, for an average of $1,370/sf, 20.6 percent above the previous peak average of $1,136/sf achieved in 2013. The quarter also recorded three Class B sales in Midtown South that averaged $778/sf, another record high.
By contrast, Downtown recorded only one Class A sale at 180 Maiden Lane in the first quarter of 2015, which traded for $394/sf, a sharp decline from the $535/sf yearly average achieved in 2014. The property was 65 percent vacant at the time of the trade, which accounted for the lower sales figure. Meanwhile, one Class B property in Downtown traded for $464/sf, a steep increase from the $350/sf annual average reached in 2014, and the second highest price/sf on record.
The appetite for Manhattan assets remains strong among foreign buyers. For example, Canadian institutional fund manager Ivanhoe Cambridge, Norwegian sovereign fund Norges, and Japanese real estate investment fund Jowa Holdings — three investors who previously made Manhattan acquisitions — all purchased additional Manhattan properties in the first quarter.
“The first quarter of 2015 ended with exceptional sales activity throughout Manhattan,” said Joseph Harbert, President of the Eastern Region for Colliers International. “Core properties will likely continue to fuel this activity, as value-add investment opportunities wane after strong sales in 2013 and 2014. It’s also worth noting that interest rates, borrowing costs, and investor returns are now lower than during the prior peak in 2007.”
Additional highlights from Colliers International’s’ first quarter report:
- Foreign buyers were the most active group in the first quarter, with 62 percent of all acquisitions, followed by institutional buyers (19 percent), private equity funds (9 percent), REITs (7 percent), and private market buyers (3 percent);
- On the sell side, profit-taking private equity funds were the most active in the first quarter (67 percent), followed by institutional and private market sellers (12 percent each), and REITs (9 percent). There were no foreign sellers.
- In Midtown, 1095 Avenue of the Americas traded for $1,833/sf. The 1.2 million-sf building is occupied by MetLife, Verizon, and Whole Foods, the latter of which recently restructured a 20-year lease for three levels of valuable retail space.
- Midtown South development 837 Washington Street, which is fully occupied by Samsung with high-value retail, traded for $3,010/sf, making it the largest price/sf ever recorded in Midtown South for an office building.