Adela Muresan 
After taking the pulse of the residential market and drawing the outlook for 2017, we decided to pick the brains of commercial real estate pros on what’s to come in the retail, office and multifamily sectors.
First, a quick overview:
- Investment in the multi-family sector will remain strong, say 61% of respondents, and Brooklyn is once again cited as the top contender, followed by the Bronx
- The Bronx is poised to be popular with investors in all manner of commercial properties, and the Mott Haven waterside is once again the talk of the town
- Foreign investment is to stay high in 2017, led by Chinese, European and Russian investors
- 54% of real estate pros think office tenants will look to move out of Midtown leases, and favor Brooklyn as the next likely destination
- Over half of real estate pros see the retail market taking a hit this year, with Midtown thoroughfares most affected
Multi-family sector stays strong, Brooklyn best sub-market to invest in
There was some indication of the rental market softening in 2016, as landlords started granting tenants more concessions than in previous years. Yet, market stats did not budge by a lot, according to Douglas Elliman – median rents held their ground in Manhattan and Queens, and only started to decline in Brooklyn during the last quarter.
The majority of our respondents – 61% – had a positive outlook on future investment in the multi-family market, and expect no drops in property transaction volumes in 2017. Some, though, see a shift in the type of property most sought after in the market. Jackson Strong, VP of Titan Partners, says: “For smaller players, the greatest opportunities lie in two-family homes as construction costs are much lower… and [there is] strong demand for these housing types”.
Respondents highlighted Brooklyn as the best borough to invest in; in fact, 41% recommended at least one neighborhood in the borough as a good place to buy. The most popular choices were Bedford-Stuyvesant, Bushwick, Greenpoint and Williamsburg. To find out more about new commercial projects hitting the Brooklyn market, head to CommercialCafé for the full scoop.
As far as borough preferences go, a close second was the Bronx – 32% of respondents mentioned this borough as a a great market for multi-family investment.
Residential real estate pros participating in our previous 2017 predictions study raved about the Brooklyn sub-market too, and looked to Bushwick and East New York as their top 2 choices for the hottest neighborhoods of 2017. Bedford-Stuyvesant featured in the top 5, and three other neighborhoods in the borough – Sunset Park, Crown Heights and Flatbush – were also popular picks.
Of those who had doubts about the health of the multi-family sector (39%), few see this possible downturn as a dramatic shift in the pace of transactions. Rather, they predicted a decrease in transaction volume of about 11%, on average – a stumble, but not a free-fall.
The Bronx to see commercial investment downpour, Mott Haven in particular
This borough has been at the center of a real estate hype for the past three or so years, and enthusiasm hasn’t dwindled, it seems. Two thirds of our respondents (66%) say the Bronx will be a hot spot for investment this year, for all types of commercial property. When asked to give specifics, respondents favored South Bronx – Mott Haven in particular – as the area where most of this investment will go.
When we asked experts in the business for details, Marc Glassman (Bayrock Capital) described the borough’s potential by saying “…the Bronx will continue to get stronger as rents keep increasing in the borough, and it will be least affected by the spike in interest rates.”
Ben Nahmani of Berko & Associates added “South Bronx developments, especially the residential projects along the water, will be a key driver to the expansion of the Bronx markets.”
Foreign investment won’t be going anywhere, China holds on to its lead
Despite a slowdown in international markets and the depreciation of the Chinese yuan, a solid majority of real estate pros (67%) feel confident that NYC will keep attracting foreign investment at a steady pace.
In fact, it’s precisely Chinese investors that are poised to be the stars of international capital inflow, according to 63% of those who singled out one or more countries as the likeliest sources for investment. About a quarter of these respondents mentioned Russia as an important player on the market in 2017, while 30% included at least one European country.
Midtown small- and mid-size office tenants to look for new leases in Brooklyn
More than half of the real estate pros we asked (54%) think that at least some tenants currently operating in Midtown office spaces will be looking to move out to less pricey business hot spots, and many respondents agree Brooklyn will be the likeliest next stop. For businesses with low square footage needs, destination neighborhoods include Downtown Brooklyn, Williamsburg and DUMBO.
What’s more, the nature of office spaces seems to be shifting as co-working spaces become increasingly more popular. Professionals in the office sector are picking up the vibe, and a 75% majority expect to see demand for co-working office space leases increase this year.
Manhattan retail vacancy rates set to rise, Midtown prime areas will be hardest hit
60% of commercial pros expect more retail space in Manhattan to become vacant in the next 12 months, as ecommerce continues to make strides and puts greater pressure on brick & mortar retail to cut down costs.
When asked which areas will be most affected, 33% singled out Midtown prime corridors – 5th, Madison and Park avenues – as the likeliest spots to lose tenants in 2017. Vacancy rates on these thoroughfares have already gone up in 2016, according to Cushman & Wakefield, and prices fell from the highs recorded in 2015.
To some, this represents a welcome correction in market prices that had risen to unsustainable levels. Others, like Minnette LeBlanc of The LeBlanc Organization, see the crème of the sector keeping its appeal to investors in times of economic uncertainty. LeBlanc maintains that “…well located and capitalized retail with well qualified, experienced tenants will also provide safe haven and cash flows during currency and rate fluctuations”.
With regard to one major retail sub-market – 5th Avenue – 71% of our survey respondents agreed that the extra security around Trump Tower will affect retail business located on and around the thoroughfare.
66% of respondents see positive impact of new presidency
There’s no way around the question of what the new administration might bring in terms of policies impacting the national and local real estate markets; and our survey respondents obliged. The overall sentiment is a positive one – 66% of commercial pros feel that president Trump will give the market a boost. A further 16% see the Trump presidency having no impact on business, while 18% predict that the market will deteriorate under the new administration.
All in all, our findings confirm the prevailing belief in the media that the new president will likely simplify regulations and restructure taxes to the benefit of real estate investors and developers.
Methodology:
This survey ran on the PropertyShark website for 1 month, starting on December 7, 2016. There were 80 responses from commercial brokers, investors, and appraisers who are PropertyShark’s clients.
