Deals for a piece of New York’s iconic skyline are drying up.
About $14 billion of commercial real estate changed hands in the biggest U.S. property market in the first three months of the year, the lowest tally since the third quarter of 2014, data from Cushman & Wakefield Inc. show. Sales of office towers, hotels, stores and other buildings are forecast to drop as much as 30 percent this year in Manhattan and the surrounding boroughs after a record $75.5 billion of deals in 2015, according to the brokerage. Evidence is piling up that six years of record-shattering price growth for U.S. commercial real estate is hitting a wall. Buyers and sellers in Manhattan, a magnet for property investors from around the world, are sitting out deals as the slump in oil prices, China’s slowing economy, an uptick in borrowing costs and a volatile stock market give landlords pause.
“When you’ve had a pretty steady ascent for several years, it’s logical that investors look over their shoulders for a reason or a sign that the music might stop,” said Doug Harmon, a senior managing director at Eastdil Secured LLC, a real estate investment bank and brokerage owned by Wells Fargo & Co. “In January, it felt like a game of musical chairs. Even the most sophisticated investors weren’t sure if the music had just skipped or stopped, and others were scrambling for a chair to sit in.”
Nationwide, commercial real estate values fell in February, marking the second consecutive month of declines following a six-year streak of uninterrupted increases, according to an index by Moody’s Investors Service and Real Capital Analytics Inc. The decreases are small -- less than 1 percent each -- but mark a changing tide for property owners who’ve ridden a wave of double-digit returns since 2010.
“The market is cyclical,” said Robert Knakal, chairman of New York investment sales at Cushman, which tracks commercial-property transactions in all of the city’s boroughs except Staten Island. “It can’t keep going up.”
Prices for centrally located office buildings in big cities -- one of the segments that jumped the most since the financial crisis -- now have the biggest declines. They have slumped 5.2 percent since December after surging 56 percent past the record set during the last decade’s boom, according to Moody’s and Real Capital.
‘Manhattan Reverberates’
New York accounts for about 40 percent of major-market office deals tracked by the index, according to Jim Costello, a senior vice president at Real Capital. A slowdown in Manhattan is driving the slump in U.S. office pricing, he said.
“Anything that happens in Manhattan reverberates,” Costello said.
Building sales in New York are being stymied in part by the breakdown of the market for commercial-mortgage bonds. Wall Street firms are pulling back from writing new property loans to be sold as securities after demand for the debt dried up at the end of 2015.