Manhattan office market softens though prices hold up -report

[NEW YORK] A softer Manhattan real estate market can be seen in office rents, the dollar volume and number of buildings sold, while a large Chinese buying presence so far in 2017 is likely to taper off later this year, brokerage Cushman & Wakefield said on Thursday.

The dollar volume of buildings sold in Manhattan in the first six months of the year is running at half the annualized pace of last year's US$39.6 billion in sales, which was off from a record US$59.9 billion in 2015, the brokerage said.

Foreign buyers in deals valued at US$1 billion or more are on pace to surpass last year's six transactions, with three deals closed year to date and a letter of intent signed on another, Cushman & Wakefield said at a media presentation.

Including a pending bid by sovereign wealth fund China Investment Corp for a 49 per cent stake valued at US$1 billion in 1515 Broadway, the Chinese accounted for almost two-thirds of the US$6.9 billion that foreigners invested in Manhattan properties.

But overall Chinese investment volume is declining and is unlikely to pick up because of a planned meeting of the National Congress of the Communist Party in the autumn, said Doug Harmon, chairman of capital markets at the brokerage.

Chinese investment in Manhattan peaked at US$7.91 billion last year. The number of properties bought was about 50 in 2015 and has dropped steadily since then to less than 10 so far this year.

A silver lining can be found in the rising price paid for office buildings, Harmon said. Excluding their retail space, the average price per square foot rose to US$1,161 in the first half of the year from US$1,134 in 2016 and US$1,112 in 2015.

"A lot of trapped capital is going to force deals," he said.

The rent tenants have contracted for Class A office space in Midtown Manhattan slipped to US$79.40 a square foot from US$81.04 in 2015, the brokerage said.

The net effective rent, which includes rising landlord concessions, has fallen to US$63.65 a square foot from US$70.38.

Concessions are up due to some 15.2 million square feet of new development that will come on line by 2022, along with the densification of office space.

REUTERS