NEW YORK, NY – July 25, 2023 – The first half of 2023 saw investors taking a more measured approach to the market with an eye on higher interest rates and rising expenses. As such, Manhattan experienced a decline in investment property transactions during 1H 2023 with only $5.89 billion spent in the borough, a 26% percent drop from the previous six months and a 51% decrease compared to 1H 2022, according to Ariel Property Advisors’ Manhattan 2023 Mid-Year Commercial Real Estate Trends report. Transactions totaling 141 also fell 17% from 1H 2022 and 43% year-over-year.

"Multifamily remained the most transactional asset class in Manhattan in 1H 2023 and of these deals, free-market and 421a buildings accounted for 90% of the multifamily dollar volume," said Howard Raber, a Director in Investment Sales at Ariel Property Advisors. "Strong rents for unregulated apartments have given landlords and investors confidence in the Manhattan market as they continue to seek cash flowing assets with limited regulation."

Highlights from the report by asset class include:

Multifamily.

      • In the first six months of 2023, there were 91 multifamily transactions in Manhattan totaling $1.7 billion, a 49% decline in dollar volume from 2H 2022 and 58% drop year-over-year.

      • The borough saw a major uptick in multifamily investment in 2Q 2023 vs 1Q 2023, however. In fact, nine of the top 10 sales in 1H 2023 closed in the second quarter. The jump in 2Q 2023 volume followed the Fed’s slowdown in interest rate hikes.

      • GO Partners purchased 265 E 66th St for $403 million in April, continuing their multifamily spending spree. The firm has accumulated approximately $2.5 billion in multifamily investments since the beginning of 2022.

Commercial.

      • Dollar volume for commercial assets, which includes hotels and retail properties, jumped 49% to $902 million in 1H 2023 compared to 2H 2022 but fell 51% from 1H 2022. Transactions dropped to 18, a half-over-half decline of 28% and a year-over-year drop of 66%.

      • With retail and tourism on the upswing, boutique hotel sales including 60 Thompson St (97 keys) and 33 Peck Slip (66 keys) were major drivers in the improvement in the price per square foot for this sub-asset class to an average $1,265/SF, the highest since 2013.

      • Larger hotels, however, saw a noticeable drop in pricing as evidenced by 525 Lexington Ave (655 keys) which sold for $153 million, 43% less than it was purchased for in 2017.

Office.

      • With $2.17 billion in assets sold across 11 transactions, office building sales saw a year-over-year decline in dollar volume of 45% and a 70% drop in transactions. Compared to 1H 2022, dollar volume fell 27% and transactions declined by 15%.

      • Approximately 50% of the dollar volume traded in the office sector in 1H 2023 was from the $1 billion partial interest sale of 245 Park Ave from SL Green to Mori Trust.

      • While job growth is strong, Manhattan’s overall office vacancy rate still sits at around 20% due to the rise in the hybrid-work environment. According to Kastle data, occupancy is just 50% of pre-pandemic levels.

Development.

      • Development dollar volume experienced half-over-half growth of 6% to $919 million in 1H 2023 thanks to the $598 million partial interest sale of the 85% complete condo development at 125 Greenwich St. The sale accounted for two-thirds of the total development dollar volume in the borough in the first half of the year.

      • Transaction volume saw only 14 transactions, a decline of 26% half-over-half and 46% year-over-year. In fact, transaction activity has seen consistent declines since reaching a post-pandemic peak in 2H 2021 when 35 transactions were recorded.

      • The expiration of the Affordable New York Program, rising interest rates, and increased construction costs continue to curb development activity across Manhattan. The average price per buildable SF was $401/BSF in 1H 2023 down from 2017 annualized levels of $682/BSF.

To read Ariel Property Advisors’ Manhattan 2023 Mid-Year Commercial Real Estate Trends report, please click here.