Manhattan’s Liquidity Score Plummets to Decade Low

Liquidity is declining in most of the top markets in the world, indicating a decrease in active buyers and transaction volume, and Manhattan is among the markets to see a significant decline. A report from Real Capital Analytics analyzed the liquidity in the top 155 global real estate markets in the third quarter, and found that it fell in 118 of the markets, surpassing declines in the second quarter.

Manhattan was among the markets to see a significant decrease in buying activity. Real Capital Analytics ranked the East Coast city as the third most liquid market in the world, a decade-low score. Manhattan’s liquidity score has been declining since the market had hit its peak in mid-2019, but the pandemic accelerated the downward trend.

Typically a low interest-rate environment helps to spur investment activity, but in this particular downturn, which is wrought with uncertainty, the low interest rate environment has done little to drive activity. According to earlier data from RC Analytics, national sales activity fell 68% year-over-year in August and transactions are down 36% year to date. In the third quarter, interest rates were significantly lower than they were the same time last year, at 3.8% compared to 4.7% in the third quarter of 2019.

One of the issues hampering sales activity is a wide bid-ask gap that shows no signs of narrowing. A survey from CBRE found that 61% of buyers expected a discount from pre-pandemic prices, but only 9% of sellers were willing to offer a discount. “Buyers and sellers remain apart on many asset types, especially value-add where the bid-ask spread remains wide,” said Chris Ludeman, global president of capital markets. “Uncertainty about how to underwrite net operating income will remain until the pandemic is under control. Cap rates have remained relatively stable and in fact have gone down for the best industrial and multifamily assets. There is no shortage of equity capital, both foreign and domestic, targeting real estate and debt markets are increasingly accommodative.” In addition, buyers are placing increased importance on credit tenants and long-term leases as a way to hedge against risk through the pandemic.

Currently, investment volumes remain well below pre-pandemic levels, but investors are confident that investment activity will recover within a year, according to the CBRE survey. Of the respondents, 90% were the most bullish on industrial product, expecting the swiftest recovery for the asset class.