"That's a very clear indication that the average transaction is getting smaller," said Massey Knakal chairman Robert Knakal during a media briefing Tuesday. Also getting smaller, at least temporarily, are most of the other indicators for investment sales, although Knakal said that's subject to change in the near future.
Prices per square foot fell across the board in '09 compared to a year earlier, declining anywhere from 16% for multifamily properties to 62% for office buildings, Massey Knakal's third-quarter report says. For well-leased office properties, though, the price drop-off was considerably shallower: 25%, compared to 70% for problem properties.
The $3.2 billion in YTD sales, representing Manhattan properties below 96th Street east of Central Park and below 110th Street west of the park, is down 82% from the $18 billion recorded in the first three quarters of '08 and down 92% from the comparable period in 2007, according to the report. A somewhat less drastic falloff from earlier years was represented by the number of transactions: 207 YTD, off 60% from the 528 sales in the first nine months of '08 and 75% from the 829 that closed in '07's first three quarters.
Those 829 deals in '07 represent an annualized turnover of 4.5% of Manhattan's 27,649 buildings. In common with the YTD tallies for 2005 and 2006, it's well above the annual average of 718 properties changing hands, for an annualized turnover averaging 2.6%. "Thus far in 2009, the 207 sales represent an annual turnover of 1.01%, which is well below the lowest turnover ever recorded of 1.6% in 1992 and 2003," the report states. Both of those years occurred at "the end of recessionary periods which saw cyclical peaks in unemployment."
More than half the dollar volume YTD came from office sales, which totaled just under $1.8 billion. But with 10 transactions in the first three quarters of this year, office deals were outnumbered by every other sector with the exception of hotels, specialty-use properties and development sites. Multifamily properties totaled 88 transactions, including one- to four-family properties, walk-up buildings and elevator buildings. One- to four-family properties also recorded the highest average price per square foot: $1,420, more than four times the office average of $319.
However, Knakal said Tuesday, "We think we're past the bottom in terms of the dearth of volume." Each of the first three quarters YTD has represented an improvement over the previous quarter. By way of illustration, sales in the first quarter of '09 represented an annualized turnover of just 0.7%, and Q3 sales were up 73% over the second quarter, albeit from a small base.
One important factor in that low base is the number of properties actually on the market. "It's a completely supply-constrained dynamic," Knakal said Tuesday. "There is not much for sale."
This will change, the report says, because distressed assets are "slowly trickling into the market." Another emerging trend is the demand from high net worth individuals and institutional buyers. "We believe that this demand, combined with the recent emergence of foreign capital into the market, will increase sales volume and move us out of the slowest period for the building sales market since we started tracking market sales 26 years ago."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
