Warburg Realty Second Quarter 2011 Market Review
Like the national economy, the New York City real estate marketplace keeps moving two steps forward and one step back. Of course, since the national real estate market takes one step forward followed by TWO steps back, this is not so bad! Nonetheless, the local market’s gyrations can confuse veteran and novice alike, so I will try to deconstruct it, from a high altitude, to the best of my ability.
First, at all price levels and in most neighborhoods, the trajectories of the co-op and condo markets continue to diverge. As the world economy lurches from anxious moment to anxious moment, foreign investors continue to pour their money into real estate in Manhattan. From Latin America, from Asia, from Europe – we are seeing buyers from all over the globe eager to park their cash in the relative safety of condominiums in New York. And with vacancies in the rental market at historic lows, and rents therefore at historic highs, properties of all sizes are easily and profitably rentable. Well located condos from one to four bedrooms, from the Financial District to Harlem, trade briskly provided they are appropriately priced, with the vast majority of buyers (especially south of 110th Street) coming from out of town or out of the country.
Of course, some local buyers purchase condos too, frequently because everything is new. Condition has emerged as a key factor in determining what sells and what doesn’t. The time, expense, and uncertainty of renovation appeal to buyers less and less, and many have been willing to pay a premium to buy older properties in mint condition. Since the beginning of June, however, the resurging problems with Greece and the poor national employment numbers suggest a slowing recovery, which has given pause to domestic buyers even as foreigners remain willing to purchase promptly. The co-op market, always more oriented to domestic and usually local buyers, has shown the effects of this increased anxiety. Most agents I speak with confirm that they are showing their exclusives less, and that properties which they expected to trade quickly are not receiving offers or even frequent requests to show. This phenomenon can be seen at all price levels, although it is particularly noticeable at the top of the market, for which the second quarter of 2011 was the strongest in many years.
While there have been several trophy trades in June, there is a definite feeling of slowdown in the $5,000,000 to $10,000,000 co-op market, which had been both quick and hot leading into Memorial Day. And for units trading between $1,000,000 and $5,000,000, a similar dynamic applies. Under $1,000,000 the market remains sluggish, as it has been for most of 2011 outside the new condo sector. The relative strength and high pricing in the rental market reflect, as they so often do, a reluctance to purchase on the part of studio, one, and two bedroom clients.
More than at any time in the past several years, condition and pricing dictate the speed with which transactions take place. For very well priced units with fabulous views or unique features or perfect condition (not to mention some combination of the above), multiple offers and competitive bids over the asking price still occur. But the frequency of even those occurrences has diminished markedly in the past five weeks.
Looking ahead, our economic realities remain uncertain. Nationally and internationally, deleveraging has a long way to go before debt subsides to manageable levels. Luckily that is probably good news for New York. As America’s most international city we will continue to be a hub for global business and its practitioners both foreign and domestic. Their presence and the deep wells of capital which they have injected into our real estate environment have lent it a stability which has insulated us against the worst of the ongoing real estate crisis, in which foreclosed homes and short sales (of which we have had few) have been the backbone of real estate sales activity throughout most of the nation. And stability is just what we are hoping for as we segue into summer.