CA Surpasses NY for Highest-Priced Office Deals
In 2019, there was increased investor appetite for office product outside of New York.
“It’s the second consecutive year in which a $1 billion transaction of a California office building makes Commercial Cafe’s top 50 U.S. office list,” Diana Sabau of Yardi tells GlobeSt.com. “However, in 2018, Google’s acquisition of the Britannia Shoreline Technology Park in Mountain View came in third, behind two trophy New York assets―the $2.4 billion sale of Chelsea Market and the $1.3 billion sale of 666 Fifth Avenue.”
As a result, it seems like New York had a soft year, rather than escalating activity in the California market. Still, California was a clear beneficiary of the trend. “It’s fair to say that California’s performance has benefited from New York’s somewhat modest year in terms of office market activity,” says Sabau. “Last year, its priciest transaction was the second sale of the Coca-Cola Company Building, for $937 million. As it stands, the California market seems to do its part in contributing at least one transaction over the $1 billion mark per year, kicking-off 2020 with the planned sale of the Oceanwide Center.”
New York took the second, third and fourth places in the top five, with San Francisco round out the top-of-the-top list. California had only two deals in the top 10 deals, and Los Angeles took the number 11 position with Onni Group’s $630 million purchase of the Wilshire Courtyard East and West. Still, California activity is steadily growing. “Throughout most of the last decade, there have been at least two California entries within the nation’s top five office markets by sales volume. In 2011, 2012 and 2014, San Francisco was just behind Manhattan, with Los Angeles in the second position in 2016 and 2017,” says Sabau. “Since 2018, it was the Bay Area office market closely following the number one position—last year, Seattle squeezed into second place.
While it is unlikely that this year was an outlier, it also doesn’t seem like New York will be truly knocked off its throne any time soon. “We need to look at individual evolutions to gauge whether 2019 was an outlier,” says Sabau. “Let’s take the example of San Francisco. If we exclude the 2015-2016 peak, we can see a steady growth in sales volume―$6.2 billion in 2011 and 2012, compared with $6.8 billion last year―but ultimately insufficient to pose a threat to New York’s lead, barring an exceptionally slow year for the latter. And in 2019, the New York office market has indeed produced one of its lowest sales volumes in the past ten years.”