The New York City Development Site Sales Market..by the numbers

The New York City Development Site Sales Market

With a Macro View of the NYC Commercial Real Estate Market

By Rubin Isak, Managing Principal, Co-Founder Development Site Advisors?

Numbers don’t lie, but if numbers make you dizzy and trigger your vertigo, don’t read this! By dissecting imperative historical transaction data, we can better understand the conditions of the overall market. This article will attempt to do just that with a deep dive into the numbers of the 5-borough CRE & Development Site sales market.

We will start by looking at the entire commercial real estate sales market for all five boroughs, with sales at $500,000 and above. If we look at an overall 10-year average, NYC averages 3,834 transactions valued at $45.79 Billion per year, an average sales price of $11.79 million, a 5.54% avg capitalization rate, an avg price per sq. ft. of $485/sf: and a roughly 2.6% turnover rate per year. Last year, in 2021, there were 3,562 transactions with a total consideration of $35.3 Billion, an average sales price of $9.9 Million, an average capitalization rate of 5.8% and an average price per square foot of $481/sf. This represented an exceptional 51.3% increase in transaction volume and 56.9% increase in dollar volume compared to 2020 sales figures. 2020 saw 2,355 transactions valued at $22.5 Billion; a 23% decrease in transaction volume and 45.5% decrease in dollar volume from 2019. Fun fact, the height of the market was in 2015 with 5,033 transactions in NYC valued at $71.1 Billion!

This report will also break these figures down by borough.

In Manhattan, the overall 10-year average of commercial real estate transactions is 961 transactions valued at $32.42 Billion per year with an average sales price of $33.74 million, an average capitalization rate of 4.63% with an average price per square foot of $709.80/sf. Over a 10-year average, Manhattan also accounts for a wide majority, 69.1% of all 5-boroughs annual dollar volume.?In 2020, Manhattan saw a mere 476 transactions valued at $12.1 Billion, with an average sales price of $25.4 million; this represented a 25.6% decrease in transaction volume, a 56.9% decrease in dollar volume and a 42.3% decrease in average sales price from 2019, an understandably anemic year with all the uncertainty. In 2021, the Manhattan market made a strong statement, rebounding by a whopping 58.8% increase in transaction volume (756 transactions), 66.9% in dollar volume ($20.2 billion) with a slight 5% increase in the average sales price ($26.7 million).

In Brooklyn, the most populous Borough and #1 in transaction volume for 2021, and number one since at least 2012, (representing 38.38% of all NYC CRE sales in 2021) the market rebounded to 2018 like numbers with 1,367 transactions, $7.1 billion in sales volume and an average sales price of $5.2million. This represented a powerful 47.3% increase in transaction volume and a 42% increase in dollar volume from 2020. In 2020, the Brooklyn market saw only 928 transactions, a level not seen in over 10-years and $5 billion in sales volume, a number last seen in 2013. This represented a 22.6% decrease in transaction volume and 20.6% decrease in dollar volume from 2019.

For Queens, the 2nd most populated Borough and most diverse in the City, 2020 saw an anemic 537 transactions valued at $3.2 billion. This was a 23.7% decrease in transaction volume and a 22% decrease in dollar volume from 2019; and it was also a number we have not seen since before 2012. However, in 2021, almost signifying the resiliency of NYC; Queens came back with a staggering 68% increase in transaction volume (902 transactions) and 65.6% in dollar volume ($5.3 billion); in-fact, the last time Queens saw over 900 transactions was 2016 with 908 transactions and the $5.3 billion in sales was a record for the Borough.

The Bronx, over a ten-year average, saw an average of 462 transactions, $2.14 billion in sales volume, an average sales price of $4.66 million, an average capitalization rate of 6.68% and an average price per square foot of $179/sf. A relatively stable market. It did take a 13.1% dip in 2020, with 359 transactions from 413 transactions in 2019 and $1.8 billion in dollar volume from $2.5 billion in 2019 (a 28% decrease). In 2021, The Bronx rebounded to 434 transactions with $2.4 billion in dollar volume; a 20.9% and 33.3% increase respectively. One interesting data point is that the Bronx had an average price per sq. ft. in 2021 of $246/sf. This was not only a record number but also represented a 33.3% increase from 2020.

Staten Island got hit the hardest in terms of transaction volume in 2020 with a 47.1% decrease for 55 transactions, but actually saw a 13.3% increase in dollar volume and a 116% increase in the average sales price (a record $5.4 million for the borough) It also saw the best rebound in NYC, with 2021 boasting an incredible 89.1% increase in transaction volume (104 transactions from the lackluster 55 in 2020). 2021’s numbers brought Staten Island back to pre-pandemic data metrics.

Real Estate has always been known to have 2 main buckets: the Residential Real Estate bucket and the Commercial Real Estate bucket. Development Sites has always been placed in the commercial real estate bucket. Here, at development site advisors?, we look at the development site asset class as really its own bucket, it’s a proverbial outlier, due to its complexity.

Here, at development site advisors?, we look at the development site asset class as really its own bucket, it’s a proverbial outlier, due to its complexity.

Below, I will take you on a data-driven tour of the historic Development Site asset class sales figures; borough-by-borough.

First, we will look at the development site sales market for all five boroughs. Over a 10-year average, development site sales account for only 11.4% of all New York City commercial real estate transactions and 12.1% of total NYC CRE dollar volume. In 2021, these percentages dropped to 7.3% of all NYC CRE sales and 9% of all NYC CRE dollar volume, a 37.7% and 15% decrease respectively from 2020. We witnessed a record number of development site transactions back in 2015 with 643 sales which also held the record for dollar volume at $9.3 billion. In 2020, all 5 boroughs combined for 277 transactions, a 10-year low and a 26.13% decrease in transaction volume with $2.4 billion in sales volume that represented a 60% decrease from 2019; this was also the lowest number in a decade. 2021 did not rebound, in fact it decreased even further 5.78% with only 261 transactions but did see a 33.3% increase in sales volume at $3.2 billion and a 43.5% increase in the average sales price at $12.2 billion: an encouraging sign for value.?

It is useful if we look at this data by borough.

Manhattan has fared only better than Staten Island in number of transactions for 2021 with a mere 30 sales. This was a 9% decrease in transaction volume from 2020; and 2020 dropped 29.8% from 2019 with only 33 transactions. The land sales market in Manhattan, transaction wise, has been see-sawing downward since 2014, when Manhattan saw a decade record of 166 development site transactions and $5.9 billion in sales volume. Transactions dropped 4.8% to 158 sales in 2015 with only a 1.7% drop to $5.8 billion in sales volume, then down to 94 sales in 206, 57 sales in ’17, 80 sales in ’18, a 41.25% drop in 2019 to 47 sales and then a pandemic fueled further drop to 33 sales in 2020 with last years record low of 30 sales. 2020 also saw dollar volume tank 84.8% down to $454 million and a 78% decrease in average sales price to $13.8 million; but rebounded in 2021 to 1.3 billion, which represented a 186% increase and an average sales price at $43.1 million which represented a 212% increase: an incredible leap! 2021 also showed that only 4% of all Manhattan CRE sales was a development site transaction, a record low and a 43% drop from 2020’s 6.9% representation.

The Brooklyn land market also took a pandemic hit with a 45.8% drop in sales transactions (98 sales compared to 2019’s 181 sales) and a 58.7% drop in dollar volume ($744 million down from 2019’s $1.8 billion). Brooklyn also saw only 8% of its commercial real estate transactions representing a development site sale; over a 10-year average it historically has a 12.7% percentage of all Brooklyn CRE Sales. Last year, in 2021, Brooklyn rebounded slightly by 12.2% in transaction volume (110 sales) and 20.5% increase in dollar volume ($897 million).

The Queens development site market saw its height in 2015, where the borough saw a record 115 land transactions for a total consideration of $1.1 billion. In 2016 this number dropped to 106 sales with $996million in volume, in 2017 a further 28% drop to 76 sales and a 44.7% drop in sales volume to $551m, a 23.6% rebound in 2018 to 94 sales with a 21.8% increase to $671 million in sales volume; in 2019 it saw a 26.6% drop with 69 sales but a 23.8% increase to $831 million in sales volume. Then in 2020, a further 11.5% drop to 61 sales, a low not seen since 2012 and $481 million in sales volume that represented a 42% drop. 2021 had a slight 1.6% increase to 62 transactions with an impressive 57% increase in dollar volume at $755 million and a record average sales price of $12.2 million, which also represented a 54% increase from 2020. Queens also saw a 39.5% drop in percentage of development sites compared to CRE sales, from 11.4% to 6.9%; a decade low.

The Bronx told a different pandemic story however, with increases in the land sales market across the board in 2020! Over a 10-year average, The Bronx has seen 53 sales/year, $223 million in sales volume, an average sales price of $3.97 million and accounts for 11.8% of all Bronx CRE sales. In 2020, it accounted for a record 20.6% of the Bronx’ CRE market and saw a record 74 transactions, $515million in sales volume with an average sales price of $7 million; a 12%, 52% and 37% increase respectively from 2019! The boroughs land market actually tanked 36.5% in 2021 with only 47 transactions and a huge 63.7% drop in dollar volume from $515m to $187m as well as a 42.8% drop in the average sales price to $4 million. Again, the Bronx had a record year in 2020, during the height of the pandemic. Let that sink in.?

Staten Island was another wild card. In 2020, the borough saw 11 sales which was an 8.3% drop in transaction volume but saw a 324% (three hundred twenty four percent) increase in sales volume with $159 million and a record average sales price of $14.5 million which represented a 367% increase from 2019. However, in 2021, the transactions dropped to 10 sales, $37 million in dollar volume and an average sales price of $3.7 million; a 9%, 76.7% and 74.5% decrease respectively.

So far in 2022 from Jan 1, 2022, to July 21, 2022, we have seen 113 development site transactions valued at $1.7 billion with an average sales price of $15.2million. If we annualize this, we should expect to see roughly 226 transactions by years end, which will be a roughly 13.4% drop in transaction volume from 2021; as well as the lowest development site transactions we have seen for all 5 boroughs since 2010 which had 151 land transactions.

In summary, the development site sales market in New York City is on a downward trajectory, but it can get healthier and be more robust than ever before, with clarity.

The development site sector needs certainty for a stable sales market. Developers, for the most part, need investments and smart money in order to build. Smart money follows certainty and proven returns. Money is what fuels local economies and builds much needed housing, schools, life-science centers, industrial, office, and retail buildings. Money though is indifferent to state lines, it goes where there is certainty and friendly welcoming arms. If there is a NIMBY approach to development, the developers will go elsewhere. The transfer tax dollars will go elsewhere. Developers do good. They provide countless jobs. Yes, they build to leave a mark and create decent returns for their investors and themselves, but to also make their communities better and build again…and again; but they need a fair and clear market to participate in. I am hopeful that the powers-that-be at the state & local level understands these numbers and provide developers with clear marching orders to provide more housing. To start: Pass a 421a replacement, speed up the historic snail pace and clear the red tape at the Department of Buildings, HPD, DEP, OER, etc and let developers do what they do best. Build.