2023 was one of the most stagnant years for New York investment sales thanks to interest rates – Commercial Observer

Investors in New York spent much of 2023 keeping capital to themselves rather than losing it to high interest rates.

The city saw $21.6 billion in investment sales last year, a 41 percent drop in dollar volume compared to 2022 and one of the worst years in 10 years, according to an annual sales report by Ariel Property Advisors.

Transactions also fell 29% year-on-year to 1,904, with the number of buildings sold falling 27% to 2,516 properties over the same time, the report said.

“If you look in the rearview mirror, it’s like you’re leaving a disaster zone,” Shimon Shkuri, president of Ariel Property Advisors, told Commercial Observer. “If you take out 2020, it’s the lowest in 10 years [where we’ve seen] average transaction volume around $36 to $37 billion.

Almost all asset classes have traded well below average over the past decade, the report said. All of this was coupled with bottlenecks in the construction pipeline.

Yet hotels and retail have remained strong despite high borrowing costs for as long as the city has seen 60 million to 62 million travelers last year, almost back to pre-pandemic levels. The city’s migrant crisis has at least stabilized demand for hotels as the city struggles to find temporary housing for the newcomers.

Other indicators that make these asset classes more desirable is that jobs have recovered to pre-pandemic levels, meaning more people have money to travel and shop.

For hotels and retail properties, dollar transactions reached $4.9 billion in 2023, a 27% increase over sales of $3.9 billion in 2022. And if you compare 2023 to 2021, that equates to a 63 percent jump with $3 billion in deals that year.

On the other hand, multifamily sales were cut in half from 2022 to 2023, with sales of $7.4 billion last year, a 52% drop from $15.4 billion the previous year. About $4.3 billion of those transactions in 2023 were market-rate buildings where rents were not regulated, according to Shkouri.

But that doesn’t mean demand isn’t there.

“Those who were selling in 2023 were discretionary sellers, so what happens if interest rates come down a little bit?” Shkuri said. “I think that will encourage some sellers to come off the sidelines and actually make a transaction decision because the demand is there.”

Rent-stabilized buildings account for just 17 percent of all multifamily sales in 2023, with the Housing Stability and Tenant Protection Act of 2019 blocking the ability for landlords to raise rents on units once they are vacated, discouraging investment in these properties, according to Shkuri.

“The regulation, combined with rising interest rates, contributed to a significant drop in value, from 35 to 50 percent,” Shkuri said.

Luxury condos, high-end co-ops and buildings with vintage 421a abatements are the properties that are making investors jump, Shkuri said.

The heated industrial market suffered an even longer decline with $1.1 billion of industrial properties sold in 2023, a 56 percent decline from $2.5 billion in 2022 and a 78 percent decline from $5.1 billion sold in 2021 , when demand peaked, the report found.

The struggling office market hardly needs an introduction, and investors have taken notice. The city saw just $3.2 billion in sales in 2023, a 59% drop from the $7.8 billion sold in 2022 and a 39% drop from $5.3 billion in 2021.

But there is hope. At the end of December, Federal Reserve kept interest rates steady and predicted three rate cuts this year. That has many in the industry excited, including Shkuri, who believes 2024 will inevitably be a better year for real estate deals thanks to lower rates.

Mark Hallum can be found at [email protected].

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