Top 10 New York City Real Estate Predictions for 2019
Download the presentation from The Amazon Effect & 2019 Market Outlook event.
By James Nelson
New York, New York– The investment sales market in 2018 was a snowball of positive momentum. Rebounding from a corrective market in 2017, the year started strong and continued to trend upward. Year-over-year dollar volume rose 33 percent for all New York City property sales, finishing the year at nearly $44.3 billion. While this total dollar volume is significantly less than the market peak of $77 billion in 2015, it comes in well above the 10-year average of $40.9 billion.
Based on this information, and taking several market factors into consideration, my group and I have put together 10 predictions for the New York City commercial real estate market in 2019. We are aware that many of these predictions are bold and plan to review them at the end of the year.
- New York City dollar volume will continue to surpass the 10-year average. Dollar volume for New York City investment property sales hit nearly $45 million in 2018, up over 33 percent over the previous year, and almost $5 billion above the 10-year average. In 2019, we can expect more of the same as the market stabilizes.
- New York City will become the tech capital of the world. Due largely to Amazon’s announcement that they will be moving 25,000 jobs to Long Island City, we predict that New York City will have more tech jobs than any other city in the world. Amazon alone could grow to as much as 40,000 jobs, meaning that their four million square feet of office space could increase to as much as eight million square feet. Meanwhile, Google purchased Chelsea Market for $2.4 billion as well as St. John’s Terminal and has been buying other properties in Chelsea, parts of the West Village and Hudson Square. In total, Google will have a footprint of over 4.6 million square feet for their 7,000 employees.
- Opportunity zones will drive greater activity in the boroughs. In 2018, dollar volume in the boroughs accounted for about 28 percent of all New York City sales. We predict that will rise to over 30 percent in 2019. This will drive many new businesses and new development in the boroughs.
- Canada will continue to lead the way in foreign investment. In 2018, Canada accounted for 61 percent of foreign investment, followed by Germany with 23 percent and Israel at seven percent, whereas China only accounted for about two percent of dollar volume. At their height, China accounted for a third of all foreign investments.
- Multi-family sales will decrease by 25 percent. I am a broker who likes to keep the glass half full and this is a bold prediction, but we've got some really strong headwinds in Albany after the recent elections. Factors such as preferential rents being erased, luxury de-control going away and potentially universal rent control, are cause for concern. We predict that, on average, New York City cap rates for multi-family properties will rise by a 100 basis points.
- The retail market will average a five percent cap rate. Retail is regrouping and there are still more ways for those cap rates to expand. In 2018 the average cap rate for retail was still in the four percent range.
- The office market will stay strong. Rents in places like Midtown South and the Meatpacking district are now solidly into the triple digits. As a result, we predict that office sales will still be up at over $2,000 per foot. Investors will still be looking for more yield as interest rates start to rise. Cap rates will increase to the five percent range.
- There will be an uptick in development. Land sales will still occur in Manhattan at over $700 or even $800 per buildable foot. Some predict that because there has been a decrease in development over the last couple of years, there will be an uptick in sales. Meanwhile in the boroughs, because of Opportunity Zones, we predict that pricing and the number of land sales will increase by 20 percent.
- Industrial sales will increase by 25 percent year-over-year. This is the hottest segment of the market right now. Everyone is talking about last mile logistics.
- Get ready for a fully-engaged real estate community. We are facing a lot of headwinds in the real estate world. I already spoke about what is going on in the world of rent regulation (see article here). Similarly, in the commercial world, we are looking at what is called the small business survival act, which is essentially commercial rent control. There's also still massive inequality in the property tax system between investment properties and owner/user properties. We predict that this is the year to get involved. Reach out to your local politician, write a letter or give them a call. It does make a difference. Tell your friends, tell your neighbors, or write an editorial. This is not the year when you want to be sitting on the sidelines.