As New York Goes, So Goes The Country? Data Shows The NYC Commercial Real Estate Market Is Improving

As the biggest city in the U.S., New York has an outsized impact on the commercial real estate market. The pandemic was particularly challenging for New York City, with many people leaving. While the city’s population did decrease by 78,000 in 2023, the rate of decline is slowing. 

Office real estate also appears to be stabilizing, with office availability rates steady at around 17%. A New York City comptroller report found that market asking rents, which dropped about 7% during the pandemic, have been mostly unchanged since 2021. The trend is better at the high end of the market. Since mid-2022, the number of occupied five-star office spaces has increased by more than seven million square feet, or 14%, even as new supply entered the market. Overall rents on top-tier office space are down 3% to 4%. 

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The uncertainty around commercial real estate has slowed transactions and some that have come to market have sold for deep discounts. HKS Real Estate Advisors, a commercial real estate advisory firm, released a report for the first half of the year showing that transaction volume rose 6% in the second quarter. The total transaction volume for the second quarter was $5.82 billion, up from $5.5 billion in 2024 Q1. Total transactions also increased to 572, up from 529 in Q1. This represents a 93% improvement since the first quarter of 2021, when HKS started tracking this data and there were only 296 transactions. 

Where Is The NYC Market Headed Next?

Benzinga sat down with Peter Carillo, principal and senior managing director at HKS, to ask questions about the report and what he's seeing in the market. Some high-profile distressed asset sales have recently taken place in New York City, including 135 W. 50th St., a Midtown office tower that sold for $8.5 million – down 97% from its 2006 sale price. "The exact percentage of distressed transactions can vary by market and asset class, but there is a clear trend of increased activity in distressed sales," said Carillo. 

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Sales of multifamily assets made up the bulk of transactions during the second quarter, although the pace of transactions slowed year-over-year. Two categories that saw year-over-year gains were mixed-use and development. Development, which includes new construction, major renovations, redevelopment projects, and conversions, saw the second-highest level of transactions during the quarter.

 An increase in these types of transactions may be part of the recent flurry of conversion projects. Carillo mentioned the example of 95 Madison Avenue, a building bought out of distress for $65 million. The new owners, Sunlight Development, plan to convert the building into a 70-unit residential tower. He pointed out that only one in five office buildings can be converted and that sometimes "developers find it more cost-effective to demolish outdated office buildings rather than upgrade or convert them.".

Lower interest rates may be just one component in bringing New York commercial real estate back to pre-pandemic levels. Carillo cited data from CredIQ showing that loan modifications increased 195% in the past 12 months. He said the frequent use of ‘Maturity Date Extensions' shows that banks are strategically extending loans. Like many others, Carillo is hopeful that rate cuts could lead to more transactions, but he noted that there is still a bit of hesitancy in the market. "We are seeing a disconnect between lenders and borrowers as both parties remain in a state of uncertainty. Borrowers are holding on for less volatility before moving forward with their transactions."

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