NYREJ recently sat down with Shimon Shkury, founder and president of Ariel Property Advisors, a New York City investment real estate services and advisory company, who shared key highlights from his firm’s newly released, “Multifamily Year in Review New York City: 2016.”

Q: How did the multifamily market perform in 2016?

A: The New York City multifamily market saw transactions fall to a five-year low in 2016, while prices continued to register gains in the outer boroughs. Queens saw its highest dollar volume on record, with prices appreciating more than any other sub-market. Manhattan, contrary to previous years, lagged, with prices nearly unchanged.

For the year, the New York City multifamily market saw 656 transactions comprised of 1,120 buildings totaling $14.05 billion. Last year’s transaction and building volume were down 18% and 21%, respectively. While dollar volume dropped 26% on an annual basis, it increased 4% when the largest deal of 2015, Blackstone’s $5.5 billion purchase of Stuyvesant Town, is omitted.

Q: What contributed to the pricing gains in 2016?

A: The multifamily market continued to benefit from positive drivers including the city’s perceived safe-haven status, low interest rates, and the downside protection offered by rent stabilized buildings. In the past, outer-borough pricing growth, specifically in The Bronx and Queens, has lagged behind Manhattan. This year, in part because investors believe the rental market in these areas still has room to grow, that trend has started to shift. For the first time, Queens broke $1 billion and surpassed the Bronx in dollar volume, exemplifying that while transaction volume is down, the borough has made big strides in terms of pricing. The borough saw 15% price growth overall, with price per s/f leaping 23% to $346 per s/f.

The Bronx fared relatively well last year, with overall pricing up 13%. Price gains were the highest of any sub-market aside from Queens, with rent multiples for the borough growing 11%.

Q: What drove activity last year?

A: The outer-boroughs were the big story of the market in 2016. Pricing grew in every sub-market, while dollar volume was a mixed-bag. Northern Manhattan and Queens saw dollar volume grow by 55% and 59% respectively, as the other markets experienced significant declines. Sellers drove the drop in transaction volume throughout each sub-market last year as many held out for prices that exceeded those seen in 2015, while others opted not to sell.

From a macroeconomic perspective, 2016 was a strong year. The Federal Reserve raised short-term interest rates only once in 2016, keeping rates historically low. As of December, the unemployment rate stood at 4.7%, a 30 basis point drop from a year earlier, as the country added 2.2 million jobs throughout the year. Altogether, the labor market moved toward ‘full employment’ in 2016, while the economy strengthened, albeit slowly.

Q: How did the other submarkets perform in 2016?

A: Manhattan experienced a sluggish 2016, with dollar, transaction and building volume falling significantly versus 2015. Transaction volume dropped 18% to 146, building volume slid 30% to 224 and dollar volume fell 47% to $5.73 billion. However, similar to the city as a whole, when Blackstone’s purchase of Stuyvesant Town is removed from dollar volume totals, 2016 was actually up marginally. Pricing indicators were up on average 1% year-over-year, with a 6% decline in price per unit offset by increases in other metrics.

In Northern Manhattan, dollar volume surged 55% to $2.72 billion, spread over 105 transactions and 241 buildings. Large-scale sales dominated, with six institutional-level transactions over $100 million accounting for $1.27 billion, nearly half the borough’s dollar volume.

Leading the way was the East Side 47 portfolio, a 47-building portfolio concentrated in East Harlem that sold for $375.5 million, or $501 per s/f. Other noteworthy transactions were Savoy Park and Riverton Houses, which sold for $340 million and $200.85 million, respectively. Many institutional caliber deals transacted at high pricing metrics, causing valuations for the sub-market to increase across the board, with the price per unit alone climbing 16%.

Brooklyn’s multifamily market saw double-digit drops in volume metrics, with dollar volume dropping 28% to $2.64 billion. Transaction volume slid 22% to 186, while building volume sank 33% to 287. Pricing metrics, continuing an ongoing trend, climbed, rising 9% overall. Both price per s/f and price per unit rose an impressive 15% on the year.

Williamsburg led all of Brooklyn in terms of dollar volume for the second year in a row. Crown Heights and Flatbush also had strong years. Crown Heights saw $338.45 million in sales across 22 transactions, with price per square foot increasing 20% to $360. In Flatbush, $217.76 million traded over 24 transactions, with its price per s/f growing 14% to $239.

Q: What do you see on the horizon for the multifamily market this year?

A: Today’s near-term outlook is more uncertain than in recent years, with plenty of headwinds, including the tightening of credit markets after the election, as well as higher rental supply, which is causing free market rents to plateau or fall. However, this supply should take 12-18 months to stabilize and after that, rents should begin to rise again. At the same time, equity investors and funds are still bullish on the market, so there is still plenty of demand for multifamily properties.

Q: Where can we get a copy of this report?

A: Ariel Property Advisors’ “Multifamily Year in Review – New York City: 2016” and all of our research reports are available on our website at http://arielpa.nyc/investor-relations/research-reports.