NYC Sales Muscle Back into Global Top Five

NEW YORK CITY-London and Tokyo may still hold the top two slots, but the New York metro area vaulted back into the top five global commercial property markets in 2010, Real Capital Analytics said late last week. Elbowed out of the top five into sixth place during 2009, the city’s $16.3 billion in closed transactions worth at least $5 million put it ahead of Paris, Hong Kong and Washington, DC, according to RCA.

Not only New York City in particular, but also US markets in general dominated the global rankings over the past 12 months. RCA said American cities accounted for four of the top 10 slots, with DC followed by Los Angeles and San Francisco, and represented 12 of the world’s top 30 markets, a tally not approached by any other country. In ’09, by contrast, only seven of the 12 US cities currently represented were in the top 30.

Reflecting both the depth of the downturn and the strength of the rebound, the US markets in the top 30 averaged year-over-year increases of 160%, compared to the 80% average for non-US markets. The New York metro area’s YOY increase was 196%; Manhattan’s percentage gain was even larger at 233%.

The gains are impressive, a clear indication that “a vigorous recovery is under way,” RCA said in its ’10 overview in January. Leading the way in '10 was office, which recorded $41.2 billion of sales across the US; hotels saw the sharpest spike in volume at 358% over ’09 levels. Yet the data firm also pointed out that while the ’10 total of $134.1 billion in significant US property sales across all sectors was more than double that of the year prior, “it is important to note that investment activity is still just a fraction (29%) of deal activity at the market’s peak in 2007.”

Nonetheless, RCA said in its overview, “2011 is kicking off with significant positive momentum and even optimism, a radical difference from one year ago.” As evidence of that momentum, RCA noted that transaction volume reached $27.4 billion for December alone, the best single-month result since ’07. Further, the MIT Center for Real Estate said last week that its commercial property price index, based on assets sold by major institutional investors, saw an 11.9% gain in the fourth quarter and a 19% improvement for all of last year.

The quarterly and yearly gains were the second highest in the history of the MIT/CRE index dating back to 1984; 2005 holds the record on both counts. On an accumulated total return basis, including income, the index is now only 15.7% below its ‘07 peak, according to MIT/CRE.

Like RCA, MIT/CRE also noted an increase in dollar volume that was more than double the ’09 level: in this case, $10.5 billion of index sales compared to the prior year’s “extremely low” total of $4.4 billion. This increase has occurred even though “the property owners tracked by this index, largely tax-exempt institutions’ real estate investment managers, tend to have deep pockets and are not forced to sell distressed properties,” says David Geltner, director of research at MIT/CRE, in a release.

FTI Schonbraun McCann sees buyers and sellers finding more common ground across the commercial property sector. In a release, Michael P. Hedden, a managing director in SMG’s real estate valuation services practice, comments, “As the market begins to reset, particularly in gateway cities like New York, Washington, DC and San Francisco, for example, we are seeing some closure of the bid/ask spread. This is allowing transactions to occur, and the stalemate of recent years is beginning to loosen.”

The progress of the recovery earns a thumbs-up from Blumberg Capital Advisors. In a note to clients, Blumberg notes that the market has enjoyed four consecutive quarters of positive returns after bottoming out in Q4 ’09. “We believe this is a clear “Buy” indicator, with very attractive pricing and a sustained recovery in performance of the commercial real estate sector in the United States,” according to Blumberg.