• 2016 NYC office sales volume exceeded $21 billion – 7% decrease Y-O-Y
• Manhattan sale price per square foot reached $1,347
• Queens price per square foot increased more than 100% in 5 years
• Over half of the top office sales of the year were to foreign investors

Investment Strength Prevailed Through 2016 Hurdles

Last year had its fair share of economic and political uncertainty, as is most often the case in an election year. According to a Bloomberg survey quoted in JLL’s Q4 2016 Office report, some businesses preferred to wait until after the election to make any major commitments.

Even so, the office report released by our sister-company COMMERCIALCafé found that investor interest in the New York City commercial market remained strong. Total sales volume amounted to $21.1 billion, which marks a 7% year-over-year decrease, but remains well above the previous 4 years’ average of $15.5 billion.

128 office buildings were sold, amounting to a little over 22M SF of office space. This also marked a slight decrease of 3% from the previous year’s office sales activity, when the total traded was 23M SF.

Manhattan Price per Square Foot Climbs to 5-Year High

Midtown Still Undisputed Priciest market

Increasing tenant demand for top-quality office space, be it in new buildings or renovated spaces, has kept the average price per Square Foot rising, over the past 4 years.

Data analyzed by COMMERCIALCafé shows a steady rise in the average yearly sale price per square foot, starting at 2012’s $959. The price increased by 40% over 5 years, resting at $1,347 in 2016. Year-over-year the increase was a modest 7%, up from the $1,257 average recorded in 2015. Midtown remains the highest priced NYC submarket, where, in 2016, 50 office properties were sold at an average price of $1,531 per square foot.

Queens & Brooklyn Emerge as Tempting Markets for Office Investment

Rising Manhattan costs have had investors seeking more modestly priced opportunities in Queens and Brooklyn, in the past few years. Consequently, this study made some interesting discoveries:

• In 2016, Queens was home to 13 transactions at an average of $762 per square foot. Last year’s price was 28% higher than in 2015 and marked a 116% increase in the borough’s average price per square foot since 2012.
• The Brooklyn average price per square foot peaked in 2015 at $819 and sales activity saw 21 assets trading hands. This market cooled in 2016, with fewer transactions and an average price decrease of 16%, to $690.

Spike in Sales over the Summer

COMMERCIALCafé’s monthly sales volume analysis for 2016 shows a clear spike in early summer closings. The year kicked off with a January sales volume of $2.3 billion which was only surpassed by May and June, each with a dollar amount in excess of $4 billion.

Eleven deals closed in May for a total of almost $4.3 billion, topped by June, with 18 transactions that came out to a sales volume of just over $4.4 billion.

Biggest NYC Office Sales Of 2016

The biggest deal of the year accounts almost entirely for the January 2016 sales volume of $2.3 billion. AXA Financial sold its 7^th Avenue tower for $1.9 billion to CalPERS. In May, AXA also sold the tower at 1285 Avenue of the Americas, raking in a total of $3.6 billion on these two deals alone.

Manhattan did not hold all the top spots in 2016 – one Brooklyn sale made the cut, landing at number 17. The Jehovah’s Witnesses’ Watchtower portfolio was purchased for $340 million by a joint venture led by Kushner Companies. The same investment partnership bought another Jehovah’s Witness Brooklyn property in December of 2016 – a DUMBO development site, for $354 million.

The Top 20 also reveals that 11 of the office assets exchanged were purchased by foreign buyers, each price tag in excess of $400 million. Asian buyers accounted for 7 of them and highlighted China as the lead investor in the Nyc Office market in 2016.

• The Hong Kong Monetary Authority investment sits at number 5 – the $1.1 billion investment in the office tower at 1095 Avenue of the Americas.
• China Investment Corporation made 2 purchases that sit among the first 10 and, together, amount to an investment of $1.94 billion.

NYC Office Market Outlook

Tenant appetite for all that is new & improved is drawing investors to innovating projects. According to the COMMERCIALCafé report, market fundamentals have held up well and are pointing to an inviting future ahead.

As companies continue to grow, their need of expansion or relocation into best-in-class spaces is being rewarded by new developments that are either already hitting the market or are slated to deliver by the end of the decade.

L & L Holding is bringing the first new office tower on Park Avenue in nearly 50 years. The 47-story, 670,000-square-foot building at 425 Park Avenue is set to deliver in 2018. According to The Real Deal, the property, still under construction, already holds the record for the highest price per square foot ever paid for Manhattan office space, leased at $300 per square foot.

The Hudson Yards project, developed by Related Companies and Oxford Property Group, has already attracted prime Midtown tenants like Wells Fargo, L’Oréal, Coach and HBO to relocate to 10 Hudson Yards. The 30 and 50 Hudson Yards office towers are also expected to deliver prime office space. The 90-story 30 Hudson Yards tower will be completed in 2019 and will be almost 40% occupied by Time Warner.

Methodology: COMMERCIALCafé compiled the NYC 2016 office report based on Yardi MATRIX and PropertyShark sales data, analyzing transactions in excess of $5 million that traded office buildings and spaces larger than 5,000 square feet. The data analyzed spanned 4 years, from 2012 to 2016, and included sales recorded as late as January 25^th 2017, leaving out ownership stake deals.

See the full Commercial Café 2016 NYC office report here.

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