New York City attracts more commercial property investment than anywhere else in the world, a report from Cushman & Wakefield released last week revealed. Gotham beat out London as the hottest investment hub, an honor it has not held since 2007.
The so-called “flight-to-quality” has trophy buildings commanding high prices again, because they are low-risk—New York City is one of few places on the globe that continually shows real rent growth, according to the report. The volume of commercial investment property sales was 163 percent higher than in 2010, according to numbers for the first three quarters.
Nat Rockett, of Cushman’s capital markets group, said this is a good sign for the market as a whole—“If one asset category is rising, it will tend to bring the others with it … All boats tend to rise,” he said. Meaning those pushed out of investing in Class-A space will naturally gravitate to Class-B, and so on. Not everyone is sure that will work, however. “While the trophy sales make the aggregate figures look promising, the lower-quality assets aren’t necessarily benefiting from the increased demand … Sales may actually be dampening the market for lower-quality assets, as the high-priced sales inflate the pricing expectations,” said Ben Carlos Thypin, director of market analysis at Real Capital Analytics.
In addition, a number of recapitalizations accounted for the rise in transaction volume, and many of those were with foreign investors, such as the recent high-profile recapitalization at 230 Park, where an unnamed Korean pension fund joined Invesco in purchasing a 95 percent interest in the building. Whether or not and how much foreign capital we want flowing into our real estate market is, of course, a perennial debate.
But the “startling turnaround in sales volume and in valuation,” as Mr. Rockett called it, is good news for at least one quadrant of the city’s real estate industry. “There is always worry that fear distorts the market, but what is a distorted market?” he asked. With interest rates so low, investing in trophy real estate simply makes sense, according to Mr. Rockett. “Yields are low, but if you compare the yields that buyers are getting to Treasuries, the spreads are within historical norms,” he said.