Retail Property Transactions Volumes Increase by 11.8% Since the Start of 2015


February 17, 2016

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    • Average deal execution is down from 2014 Levels in 2015 but the sector continues to do well.

    • 2014 saw significant blockbuster deals, which created a disproportioned market and unrealistic expectation in retail prices by landlords.

    •   Average cap rates have fallen to 4.9% across all boroughs in NYC—the lowest in history.
         

      The retail market in New York City has seen some interesting changes in 2015. NYC average retail property in 2014 saw an average price per sqft of $1,142, and in 2015 an average of $900 per sqft. This change being mostly due to blockbuster executed in 2014, which skewed the price per square foot in the market.  However, the number of retail properties sold in 2015 was 464, while in 2014 there were 415, an 11.8% rise in transactions However, the dollar value of successful deals was down:  

     

    • In NYC 2014 $4.79 Billion vs. 2015 $3.3 Billion

    •   In Manhattan 2014 $3.61 Billion vs. 2015 $1.07 Billion
         

      This is a decline of around 32% across the market in NYC, which has not been seen since the 2012 & 2013 markets, which saw a 62% drop due to large retails sales realized in 2012. As the larger transaction continue to be seen in Manhattan, there continues to be strong demand across the boroughs. With exception to the Bronx market, which has been negatively impacted the most.  

     

      The retail market from a valuation perspective saw cap rate averages decline significantly since the beginning of the credit crisis; as cap rate at the end of 2015 in NYC, saw significant drops. Causing significant price inflation in this market. 2010 cap rates, which  were closer to 7%, compressed closer to 4.9% in 2015--a dropped from 5.52% in 2014. We should either expect further price inflation to continue or flatten out. As the world continues to search for safe haven investments and yield. The market will retain low costs of debt, due to the Fed’s, and global central banks', inability to raise interest rates due to the fear of slowing economies. Furthermore, the threat of  negative rates, will only further the current trend.  

     

      Given this amazing pricing movements, the retail property sector has not witnessed growing interest and demand. Retailers who have been seeking leases in NYC have been moving out of prime neighborhoods such as SoHo and midtown, to explore lower-priced areas such as NoLita or the LES. Only to have learned in 2016 that price inflation has caused prices in these areas to match those of prime neighborhoods, across Manhattan. As neighborhoods are starting to hit price equilibrium, we continue to expect a slowing of price increases as landlords compete for quality tenants, close their doors or extend their leases at higher prices.  

         

 


 
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