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Real estate investment sales dropped off in Manhattan last year as high-interest rates and other factors made various property types in the New York City borough less attractive to investors.
Investor sales in Manhattan dropped 45 percent throughout 2023 to $11.1 billion, according to a report from Ariel Property Advisors, the worst year in the past decade, excluding 2020. The number of deals fell 33 percent to 280, according to the report.
“Looking back at 2023, investors maintained the same conservative approach to the market as they’ve held since 2021, expressing concern about higher interest rates, rising expenses, and apprehension over the potential expansion of residential rent regulation,” said Howard Raber, director of investment sales at Ariel.
Development site sales also fell 45 percent to $1.48 billion.
“Development site sales volume remains very light and the price per buildable square foot is hovering around levels that make this asset class attractive to those looking to capitalize on record residential demand amidst persistent underbuilding,” Raber said.
Sales of multifamily buildings fell 64 percent to $2.71 billion, with the number of transactions falling roughly a third to 163. Sales volume of office buildings fell 58 percent to $2.87 billion, with the number of deals falling by half to 24. The continued slide towards remote work led to the property type’s sale per square foot falling to $848 per square foot from $1,088 in 2022 — the lowest since at least 2017, according to the report.
There was one bright spot in the report, however. Commercial properties such as hotels and retail spaces saw a 41 percent increase in investment sales, much of which can be attributed to Prada’s acquisition of 720-724 Fifth Avenue for $822 million. The Italian fashion brand had been renting the retail space at 724 Fifth Ave for a number of years before purchasing it.
Sales of hotel buildings also generated nearly $2 billion in Manhattan during 2023, as the average daily hotel rate peaked in October and November at $362 per day.
“The driving forces for the hotel market may be attributed to an increase in tourism as well as supply constraints due to the special permit requirements for new hotel construction, regulations for Airbnbs, and housing for incoming migrants,” said Chris Brodhead, senior director at Ariel.
Ariel executives said the market is approaching 2024 with “cautious optimism” as economic indicators point to the possibility of a better year, chief among them the Federal Reserve signaling it is ready to cut interest rates.
“Absent significant increases in unemployment, the combination of falling interest rates and a strong rental market bolstered by lack of new supply could lead multifamily owners to see some improvement in valuations this year,” the report reads.
