By Alexandra Bryant, Managing Director, JLL International Capital Group
New York has long been heralded as one of the most dynamic and international cities, and Q1 2015 was no exception in the world of real estate. Having lagged behind London in terms of total transaction volumes over the past few years, New York has reclaimed its position as the most traded city in the world, recording volumes of over $13 billion in Q1 2015, outpacing London and Tokyo by over 30 percent and 50 percent, respectively according to JLL research.
At an impressive 89 percent growth over Q1 2014, international investors drove New York’s significant surge in volumes, accounting for 60 percent of all purchasing activity. This was well ahead of longer-term trends despite a much stronger U.S. dollar, and furthermore mirrored a similar trend across the rest of the US. Canadian and Chinese investors lead the pack, completing over $5 billion in transactions in Q1 2015 and took the lead in terms of large transactions, accounting for three of the five deals greater than $500 million.
This is not a new trend for the Canadians, who were also a top foreign investor group into New York in 2014 (and in fact, the U.S.). Office investment continued to be the most sought after sector in terms of total volumes in Q1 2015, both for Canadian investors and others. Class A Midtown office assets commanded both the highest level of interest as well as the highest ticket price, with average values reaching just under $1,900 per square foot. This strong pricing was attributed to two deals that closed in Q1 2015; with seven deals currently pending, JLL expects YTD average pricing at $1,650 per square foot. With vacancy rates trending down, asking rents seeing robust growth and a historically limited office development pipeline, the ‘flight to safety’ perspective of international investors seeking to gain exposure to some of New York’s most prestigious office assets is one we expect to persist.
While Canadians have continued to be a mainstay in the office sector, Chinese investors have primarily been focused on the development end of the market in New York over the past 18 months, particularly in terms of the number of transactions completed. And while JLL does not include these deals in total transaction volumes, the firm estimates that this would add over $2 billion of further investment into the city (based on total estimated development value). These groups are clearly focusing on two key market trends – unabated demand for NYC housing and the continued strength of the residential condominium market. The multifamily segment continues to lead the market in terms of number of deals, with an average sale price of more than $850,000 per unit or $800 per square foot. The condominium segment of the market is also continuing to show pricing gains, which has resulted in average land pricing of approximately $690 per square foot, up 25 percent from mid-2014.
Although largely targeted as a condominium conversion, Anbang Insurance’s $1.95 billion acquisition of the Waldorf Astoria has made big waves as the largest outright acquisition of an existing asset by a Chinese investor since Zhang Xin’s acquisition alongside Safra of the General Motors Building in 2013. Further activity from Chinese investors is expected to continue, with one major deal already on the books – Bank of China’s nearly $600 million acquisition of 7 Bryant Park, which is expected to close this year.
“International investors have been a feature in the New York market for decades; however, strong competition from well-capitalized domestic groups and the swift pace of the market has meant that it has been difficult for them to make a significant impact, with investments by foreign buyers often being minority stakes or ‘fronted’ by domestic groups”, said Scott Latham, Vice Chairman of JLL’s New York Capital Markets group. “With the greater push towards global capital flows and New York being the largest real estate market in the world, it is no surprise that we are seeing significantly increased interest from the most active capital sources. We are actively working with a number of major foreign players who want to find more opportunities in the market.”
Contact Alexandra Bryant