Tropp: “The strength in pricing is particularly impressive and is indicative of investor confidence.”
NEW YORK CITY—Brooklyn’s investment property sales softened in 2016, following the record-setting 2015, yet prices across most asset types appreciated, according to Ariel Property Advisors’ newly released Brooklyn 2016 year-end sales report.
The city’s biggest borough saw 1,327 transactions last year, which consisted of 1,646 properties valued at approximately $7.8 billion. The figures represent year-over-year declines in dollar, transaction and property volume by 16%, 7% and 18%, respectively. Downtown Brooklyn and Park Slope captured the bulk of activity, accounting for nearly 31% of the submarket’s dollar volume, driven by several large-scale multifamily and development transactions.
Brooklyn’s multifamily sector fared better in terms of transaction volume and pricing versus the development and office markets. While multifamily dollar volume fell 12% year-over-year to $4.02 billion, the number of transactions rose marginally to 865. Multifamily pricing metrics climbed higher for the year, rising 9% overall. More specifically, price per square foot and price per square unit both increased an impressive 15% from 2015 levels.
“Depite the recent rise in interest rates, the financing environment remains attractive, which can partly explain the stability seen in Brooklyn’s multifamily market,” says Daniel Tropp, a director at Ariel Property Advisors. “The strength in pricing is particularly impressive and is indicative of investor confidence, both institutional and private, in this asset class.”
One notable sale was Greystar Real Estate Partners’ purchase of 246 North 8th St. & 255 N. 7th St., a 170-unit Williamsburg elevator rental property that sold for $125 million, or $824 per square foot, making it Brooklyn’s largest multifamily transaction of the year.
The Brooklyn development market, meanwhile, held up reasonably well despite rising construction costs, a more challenging financing environment, and the expiration of 421-a. The asset class experienced a relatively modest 12% drop in dollar volume, while transaction volume declined 19% year-over-year to 338. Development accounted for 40% of the borough’s overall dollar volume, only trailing the multifamily asset classes’ contribution of 52%.
Similar to the multifamily asset class, the Brooklyn development market saw prices edge higher, despite a drop in sales volume, with the average price per buildable square foot rising to $262. The most notable development transaction of 2016 was the $345 million sale of a vacant lot at 87 Jay Street sold by the Jehovah’s Witnesses to the Kushner Companies. The Dumbo property, which spans nearly one million buildable square feet, sold for $355 per buildable square foot.
“Saturation has hindered the rental market,but condominium sell-outs continue to rise, so developers, once again, are pursuing condominium projects,” explains Jonathan Berman, a director at Ariel. “A reinstatement of 421-a appears to be in the pipeline, which should ignite development activity, particularly in areas where it was already popular, such as Crown Heights and Bedford-Stuyvesant.”
Following a great deal of activity the previous year, Brooklyn’s office market dramatically underperformed in 2016, registering the largest declines of any asset class in 2016, with 47% fewer transactions and a 64% drop in dollar volume. Nonetheless, multiple major office projects, including Industry City, the Brooklyn Navy Yard and Red Hoek Point entered their first phase of development during the year, which will add high-quality office space to the borough’s inventory.
The outlook for 2017 is more uncertain than it has been in recent years, the report notes. A strengthening labor market and rising inflation practically guarantee a further tightening of monetary policy by the Federal Reserve this year, leading to higher interest rates. Other headwinds include a market facing a greater supply of residential units and a stronger dollar, which could suppress demand from overseas investors.
“If revenue growth is modest, sales volume may be constrained if owners hold out for prices that do not reflect current conditions,” warns Alexander McGee, a director at Ariel. “Still, near-term growth may emerge in areas benefiting from major infrastructure projects or new demand stemming from the 18-month shutdown of the L-train.”