NYC Office Transactions Mark Bright Spots for 2020

NEW YORK CITY –The New York City investment sales market wrapped up unexpectedly as the industry was teetering that 2020 could see an economic slowdown. But that isn’t the case with the fourth quarter of 2019 ending on a strong note with a boost in dollar volume from office transactions, ground lease transactions, steady, low-interest rates, rapid leasing from tech tenants and a surfeit amount of capital on the sidelines, according to the Avison Young team at their press breakfast held at the Rainbow Room in 30 Rockefeller Center.

“We don’t see a big economic downturn in 2020. The CRE market will hold its own,” Mitti Liebersohn, president and managing director of New York operations at Avison Young, told the attendees.

Private equity has raised an estimated $151 million in what is a new record, and coupled with low-interest rates, it’s looking up for the market, which now has a more optimistic attitude about the road ahead in the investment sales for 2020, according to a report Liebersohn cited.

With the possibility of a natural market dip in the distance, what is deemed a more immediate threat and that could result in a flat market is the election year ahead and geopolitical conflict. “It’s a mixed bag,” Liebersohn said. “With all the capital sitting on the sidelines, we expect there will be development and investment in the coming year. On the other hand, you have political things going on; impeachment and an election year.”

Overall, the 2019 year ended with 641 investment property sales that were above $5 billion in New York City, illustrating a drop in the ten-year average. However, there was still a strong performance in Manhattan as far as sales counted. In the fourth quarter, the office segment outshined other asset classes in the market, seeing a 17 percent increase in sales for a total of $5.2 billion in dollar volume for over 80 sales, according to Avison Young data.

Roughly $4 billion of that total number was in office sales, and driving the market is strong leasing activity from the technology, media and entertainment sectors, according to Marisha Clinton, senior director of tri-state research for Avison Young. “Given the healthy tech employment that we’ve been seeing as well as the desire for many tenants across Manhattan that want to be in close proximity to the strong technology workforce here, there’s been strong demand among tech, media and entertainment tenants,” she said.

TAMI aside, what was highly noted was ground lease real estate investment trust Safehold’s $1.35 billion in transactions in the Manhattan office market, which was in the form of purchases of the fee where properties were bifurcated between the fee and ground leasehold, which is expected to become more commonplace. “We think this is definitely a trend you all are going to want to watch because we are seeing more and more of these,” said James Nelson, principal and head of Avison Young’s Tristate Investment Sales Group. “That definitely helped to breathe some new life into the market,” he said.