Tides Turning for Manhattan Office Sales Market in Q2

Key takeaways:
  • Q2 office sales volume drops 57% Y-o-Y
  • Average price per square foot crosses over the $1,000 threshold
  • Most expensive sale of Q2 – Park Avenue trophy asset changes hands for $2.2B
  • 7 projects to come online in Q3, bringing an extra of 2.8 million square feet

Q2 Office Sales Volume Goes Down 57% Y-o-Y

Slow and steady–that’s how the Manhattan office sales market concluded the second quarter of 2017, according to a report released by our sister-company COMMERCIALCafé. Office sales volume in Q2 amounted to $3.8 billion, dropping 57% year-over-year and landing 45% below Q2 2015 levels.

However, the market picked up the pace from quarter to quarter, as total dollar volume increased 89% compared to Q1. Moreover, with seven large deals closed in the second quarter and seven more projects to go live in Q3, the Manhattan office sales market is likely to build up over the coming months.

Average Price per Square Foot Crosses the $1,000 Threshold in Q2

Q2 saw a year-over-year increase of 6% in average price per square foot, from $978 to $1,037. Prices seem to be nearing the high numbers recorded in 2016, when the average price per square foot topped the $1,000 mark. The average price rose from $743 in Q1 to $1,037 in Q2, resulting in an increase of 40% from quarter to quarter.

This growth can be in part credited to the $2.2 billion sale of 245 Park Avenue in May, which raised the average price considerably. Despite the slow start in Q1, buyer interest is still piqued, and Manhattan continues to be the most expensive and most sought-after office market in the country.

Largest Office Sale of the Quarter–245 Park Avenue Fetches $2.2B

The second quarter of 2017 ended with seven major deals and a total sales volume of $3.8 billion. While most of the sales closed well below $1 billion, one tipped the scales and raised the bar in Q2. The largest sale of Q2 surpassed the $2 billion mark—245 Park Ave. was sold to HNA Group in May for $2.21 billion.

The 1.8 million-square-foot, 45-story trophy office tower in Manhattan’s Plaza District was bought by China-based HNA Group in May, from Brookfield Properties. To complete the sale, a $508 million loan funded by JPMorgan Chase, Natixis, Deutsche Bank, Barclays and Societe Generale was needed, per Yardi Matrix data. The LEED Gold-certified tower was completed in 1966 and is home to high-profile tenants such as JPMorgan Chase, Pioneer Financial, Northwestern Mutual, Angelo, Gordon & Co., Regus and Societe Generale.

The second-largest sale of Q2 2017 fetched a price tag of $652 million. Canada-based Ivanhoe Cambridge joined forces with Callahan Capital Properties of Chicago to acquire the 30-story, Class A tower at 85 Broad St. from MetLife Real Estate Investments. The building originates from 1983 and features 1.2 million square feet, housing tenants such as JLL, MLA and WeWork. Ivanhoe Cambridge recently secured $72 million in green bonds for the tower from Natixis.

2.8M Square Feet of Office Space Lined Up for Q3

A total of seven large office properties are undergoing development in Manhattan, scheduled to go live in Q3. The largest project in the works is One Soho Square, located at 233 Spring St. in the Hudson Square submarket. The project is designed by Gensler and owned by Stellar Management, and will also include first-floor retail space.

The 768,000-square-foot spec development comprises two 13- and 15-story buildings and is expected to be ready in September. Aiming to earn LEED certification from the USGBC, the new space has already committed tenants, including Trader Joe’s, MAC Cosmetics Glossier and Cineflix Enterprises.

Another major project is underway at 375 Pearl Street. The Verizon Building, a 32-story construction originally built in 1975 for the New York Telephone Co., is currently undergoing a complete makeover. The old limestone façade will be traded in for a more modern look with floor-to-ceiling glass curtain walls, and will serve as office and data storage space.

Methodology: Commercial Cafe compiled the Q2 2017 office report based on our sales data in conjunction with Yardi Matrix, analyzing transactions starting from $5 million that traded properties larger than 50,000 square feet. The data analyzed spanned 4 years from 2013 to 2017, and includes sales recorded as late as July 3rd, 2017. Ownership stake deals, ground lease or portfolio transactions were excluded from the calculation of the average price per square foot.

See the full Commercial Café Manhattan Q2 2017 office report here.

Roxana Poenar

Roxana Poenar

With a taste for learning, Roxana joined PropertyShark in order to expand her knowledge of all things real estate. Passionate about reading and travelling, if she's not at her desk or engrossed in one of her books, then she's probably packing her backpack for a new adventure.

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