Pricing guidance remains a moving target for all asset classes all over the country. And for good reason, transaction volumes are down across the board. The headline YoY is a 63% decline, therefore, if there are less transaction, there are less comparable comps to gauge pricing. New York City is the same but different. The number of retail property sales are down nearly 1/3 off the last five-year average but pricing guidance is much clearer than other assets classes and much more so that it was six months ago. This is because the financing market is more stable (yet more restrictive), and there are simply more sold retail properties and/or on-market properties than this time last year.
Pricing guidance for NYC retail is much clearer than other assets classes.
Great, who cares? ‘Rates are high so prices are down’
Not so fast. Yes, we are now in the ‘longer’ part of the “higher, longer” in terms of interest rates. And no, nobody is buying properties over the cost of capital (meaning if interest rates are a six percent, the likely of selling something under a six cap rate is not happening).
However, quick story, last Friday evening around 5pm I ran into a long-time mentor of mine that is the President of the NY TriState region at one of the larger RE brokerage firms on the corner of Park and 40th Street. He gave me a synopsis of the office leasing market whereas within three minutes I felt that I had a great understanding of the office leasing market. In short there are many stories to office leasing right now and that yes, some parts are the office market are dead and never coming back, like the midtown Class B office space that I am currently writing this article in or the large block office space south of 23rd Street which Tech companies flocked to only a few years ago. Or are white hot like One Vanderbilt which is 100% leased with a line out the door of office tenants that want to get it. Class A office is white hot.
The demand for trophy retail locations are white hot, just as it now is for neighborhood retail.
Great who cares? This article is about NYC retail. Well, replace office leasing in the above with retail investment sales. Granted we’re way ahead in the cycle but similar story lines. In fact there are many story lines in NYC retail property sales. Tertiary markets are tough. In East New York I had a 6,000 SF commercial building fall out of contract at a 7.1% cap rate back in February and it recently sold at a 8% cap. Fire sale. However, the demand for trophy locations are white hot, just as are neighborhood retail. And buyers are happy to make purchases with leases under market or better yet, vacant. Buying on a belief in NYC Retail.