Strong Fundamentals Lead to Solid Manhattan Investment Sales

A new report by Ariel Property Advisors reveals that in 2011, strong fundamentals backed up investment sales in northern Manhattan.

New York—A new report by Ariel Property Advisors reveals that in 2011, strong fundamentals backed up strong investment sales in northern Manhattan.

Known as the “Northern Manhattan Fundamentals Report,” the data used by the investment property sales firm dissects an overview of residential and retail markets, designed to provide investors a better understanding of today’s revenue drivers affecting uptown investment property.

“From our perspective, we looked at the fundamentals of Northern Manhattan because we want to understand what drives value,” Shimon Shkury, president of Ariel Property Advisors, tells MHN. “For developers, investors and lenders, when they look at an apartment building, they look at residential rents. They look at how condos really move from a commercial perspective.”

The Ariel Property Advisors’ report shows that average residential rents and condominium prices in northern Manhattan reached their highest levels since 2008 and 2007, respectively.

“The most important thing that came out this was to see how the residential market got stronger year after year, which is very consistent with the rest of Manhattan, but also to see that the condominium market got stronger in terms of price per foot than in terms of velocity,” Shkury says. “Transactions slowed down to an extent but the prices held up, which tells us the market is very healthy, and geared towards renting vs. owning. That is consistent throughout the five boroughs.”

Residential rents have hovered near $26 per square foot for the last several years, but grew to approximately $28.73 per square foot in 2011, an increase of nearly 10 percent year over year.

“That is the highest the uptown market has seen since 2008 and reflects a broader trend of rental increases throughout the city,” Shkury says. “Rising rents have been driven by low vacancy rates, potential first-time home buyers opting to rent instead of buy, and the unemployment rate slowly but steadily declining.”

For condominiums, the average price in Northern Manhattan increased to $631,624 per unit in 2011, representing nearly $564 per square foot.

While velocity decreased from 437 transactions in 2010 to 375 deals in 2011, Shkury says that is most likely attributed to the fact that there was less new construction online in 2011. The report notes that 30 condominium projects were stalled in 2011, although developers have been buying up more development sites in anticipation of higher demand to come.

“What we are seeing is a tremendous amount of absorption in everything that was developed absorbed by sale or rentals,” he says. “We saw a surge in new construction start in 2011, and I think there will be a time in a year or two when we feel a supply constraint and we are already starting to feel it in the rental market.”

The report further shows that a majority of northern Manhattan units remain rent regulated and on average, uptown rent regulated apartments operated at approximately $17.13 in 2011.

“If you look at Northern Manhattan, the maturity of the rental units are still rent stabilized, so a lot of buildings end up with the situation of having a supply constraint of free market in neighborhoods that have been consistently improving,” Shkury says. “There are more restaurants, more services and more people coming in and we’re finding that residents moving to the area are supporting the new retail businesses opening uptown, like wine bars, yoga studios and florists.”

For that reason, Shkury expects strong rental increases to continue in the years ahead.