Sales Of NYC Office Buildings Double As More Occupiers Seize The Moment

The commercial real estate sales market in New York City rebounded in a big way last year, with $16.5B worth of properties trading hands, a 70% increase from 2023, according to Avison Young data provided exclusively to Bisnow.

The beleaguered office market led the charge, with $3.6B in sales for the year, $1.6B of which came in the fourth quarter alone, according to Avison Young. Those figures are each roughly double the total from the previous year and quarter, respectively.

Much of the activity has been fueled by companies buying buildings for their own uses. The epitome of this trend was the largest office transaction in Q4, when Morgan Stanley sold 2 Park Ave. to Haddad Brands for $357M. Morgan Stanley paid $519M in 2007 to buy the 853K SF office building.

There has “probably never” been such a high proportion of end users buying office space, said Erik Edeen, Avison Young principal and director of Tri-State investment sales operations. 

Around a quarter of all NYC office acquisitions in Q4 were made by end users, said James Nelson, principal and head of Avison Young's Tri-State investment sales group.

“End users have seen an opportunity in the market,” Nelson said. “Vacancy might be challenging for investors, but for an end user, that's actually a positive.”

Leasing remains slower than the prepandemic years, and office assets are pricing somewhere between 40% and 60% below where they were five years ago, Edeen said.

Even as bargains appeared and NYC’s leasing market trended upward, perceived challenges of filling space may have resulted in more caution from investors.

“If you look at the past few years as a whole, there's been more vacancy than there's been as far as I can remember,” Edeen said. “It's just kind of a perfect storm for a user who says, ‘I want to be in the city for a long time, now's the time to actually own a piece of the city.’” 

But while investor appetite was muted, it remained present where buyers felt the price was low enough. The evidence for that, Edeen said, was Columbia Property Trust and Cannon Hill’s sale of 799 Broadway, the 12-story, recently built office building that Savanna bought for $255M. 

“Clearly, there's appetite from investors in Class-A and trophy office,” he said.

Overall, investment sales in Manhattan CRE totaled $3.3B in Q4, almost double the total from the same period in 2023, according to Avison Young. 

But caution is present across asset classes. Dollar and total sales volume only increased slightly from the third to fourth quarters of retail and multifamily assets, resulting in an end-of-year period that didn’t bring the slew of deals that it normally does. 

There were 76 investment sales overall in Manhattan during Q4, a bit lower than 79 in Q3. The final quarter’s dollar volume was also only slightly higher than the previous quarter, which tallied $3.1B.

That’s partially due to tax incentives for new multifamily development and office conversions passing in the first half of last year, leading to a boom in dealmaking in the third quarter, which “may have stolen some of that momentum” normally seen in the final months of the year, Edeen said.

But it’s also because of uncertainty that crept into the capital markets undermining potential bargain hunting. On a national level, would-be buyers and sellers were trying to guess what would happen with the presidential election and with future interest rate cuts, while on a local level, they were speculating on whether City of Yes would pass a New York City Council vote.

“Now that all those are more or less defined, it should reduce the uncertainty in the market, which allows people to invest for the Q1 months," Edeen said.

Another potential challenge for investor confidence going into 2025 is cap rates.

Cap rates increased sharply during Q4, reaching almost 6% for retail and office and close to 7% for multifamily, Avison Young’s data showed, evidence that investors view the city's commercial real estate as riskier than before.

That could spill into the momentum in the new year, with the 10-year treasury yields — currently on a steady climb since mid-December and at their highest point since 2023 — having a knock-on effect on cap rates and borrowing costs, Edeen said.

But there’s a limit to how much cap rates borrowing costs can increase because buyers will seek alternative sources of debt or purchase buildings with cash instead, Nelson said.

“What we have also seen is that at a certain point, once the cap rates get to a certain level, then a lot of the all-cash buyers pile in,” he said. “Even if the 10-year treasury was to continue to climb, I don't think that that means that, necessarily, cap rates are going to move with it.”