Ariel Property Advisors President Sees Multifamily Market Softening
Shimon Shkury presented highlights from the company’s H1 2018 research, pointing to where he sees the market headed.
NEW YORK CITY—Shimon Shkury, president of Ariel Property Advisors, predicts the following for investment property for the second half of 2018: Transaction volume will stay stable or even become softer. The outer boroughs will continue to benefit from alternative institutional investments. Pricing will stay flat if not soften a bit.
Shkury presented his thoughts on the Ariel Property Advisors’ Mid-Year 2018 Sales Report at the firm’s “Coffee and Cap Rates” breakfast on Thursday at 101 Park Ave.
Investment Sales: Dollar Volume Up, Number of Deals Down or Flat
In H1 2018, investment sales transactions in all the boroughs reached close to $20 billion. Shkury noted that was approximately a 30% increase year-over-year, compared to H1 2017. However, he pointed out that the numbers of transactions stayed the same or declined by 3%. This meant larger transactions took place in H1 2018 compared to H1 2017.
He noted Google’s approximately $2.4 billion purchase of Chelsea Market and WeWork’s $850 million purchase of Lord & Taylor’s Fifth Avenue flagship building as examples of noteworthy transactions. Both deals also demonstrated the growing impact of tech and growth companies on the real estate market.
Multifamily – Strength in Northern Manhattan and Outer Boroughs
Ariel reported the multifamily market sales reached $5.34 billion in first half of 2018. This represented a 64% increase from H1 2017. Shkury pointed to six transactions over $100 million that occurred in H1 2018, compared to only one that took place in H1 2017. Of the six, only one was below 96th Street. Two others were in Manhattan above 96th Street, two in Brooklyn and one in Queens. Shkury has observed an interest in the outer boroughs, especially with institutions and institutional capital.
“What we really know about the multifamily market is that market is softening. Interest rates are definitely affecting pricing and there’s still a gap between buyers and sellers,” he added. “Transaction volume is still flat compared to the year before.”
No Secret—Retail is Still Hurting
Vacancy rates in retail range from 8% to sometimes 30%, according to Shkury. In response, asking rents have decreased over the past few years and pop-up stores are rising. In addition to retail reinventing itself with greater experiential services, landlords will need to adjust prices to get empty storefronts rented.
Co-Working Could Help Office Leasing
Shkury noted unemployment is at 3.8% compared to 5.1% in 2007. However, with 16.7 million new square feet under construction, he expressed concern about the amount of office space entering the market. He suggested co-working could increase office leasing activity.
“WeWork today is about three million square feet at 50 locations in all boroughs, the second largest tenant in NYC, right after JPMorgan Chase,” said Shkury. “Their whole co-working environment is measured north of six million square feet, So, that’s a big player in the office market.”