▲ The number of $5m+ transactions in Tribeca has grown by 527% since 2005
Five trends defining New York’s prime residential markets
New York City has long been the preeminent US city and dominant on the global stage. Its population rose from 8 million to 8.5 million in the last decade and its metro population now totals 20.2 million. GDP in the metro area has grown 41% from $1.15 trillion in 2005 to $1.62 trillion in 2015. Rapid growth in both human and financial capital has fueled the city’s real estate markets and shaped its urban fabric. The five key market trends of the last decade are: prime expansion, tech wealth, the rise of condos, new improved product, and New York as an elite global market place.
1. Prime expansion
The longest established prime residential markets are in Manhattan on the Upper East Side and Upper West Side, bordering Central Park. The Upper East Side is known for its large, classic New York apartments, while the Upper West Side is a somewhat more relaxed and accessible alternative. Together, these two large neighborhoods accounted for 38% of all $1m+ transactions across Manhattan and Brooklyn in 2015, and 47% of all $5m+ transactions in 2015.
The generation of new wealth in the city has pushed the prime markets into new neighborhoods. The Financial District saw 385 deals over $1m in 2015, more than ten times the 35 deals recorded in 2005. Harlem, Williamsburg and Park Slope all saw increases of a similar magnitude (Figure 2). Even Downtown Brooklyn, a market where no deals over $1m were seen in 2005, recorded 64 such deals last year.
At the upper end of the prime market, Chelsea, Greenwich Village, Tribeca and Midtown have all seen rapid growth in the number of $5m+ sales. From just a handful each in 2005, all these neighborhoods recorded more than 50 in 2015. This comes as new condominium stock is delivered to appeal to the super-prime market. Price growth has been especially apparent in Midtown where many super prime condo schemes are concentrated. The average sales price here rose by 193% to $3.8m in the ten-year period.
FIGURE 2Fastest growing $1m+ markets (neighborhoods recording more than 100 such sales in 2015)
Source: ACRIS/Savills World Research
2. TECH WEALTH
The priming of new markets comes as wealth is generated in new industry sectors. Historically, Wall Street has been a key driver of the luxury markets, but has now declined in importance as bonuses have fallen by 9% in 2015 alone. Tech is the new wealth generator, and jobs in professional, scientific and technical services grew by 29% between January 2010 and January 2016. Financial service jobs grew by just 8% over the same period.
New York has a huge advantage in the digital age because of its high ‘millennial to boomer’ ratio. Young creative talent is attracted to its vibrant, urban environment. This human capital is the most important asset for growing tech and creative businesses and cities such as New York are better attractors of it than suburban campuses and business parks.
New wealth is bringing with it new property demands. Tech companies, flush with venture capital, are operating with a unique set of guidelines that were not previously representative of the typical corporate occupier. For these tenants, the cost of space is secondary to being in the ‘right’ location. Work locations overlap with where the tech talent wants to live and so rents and prices have been fueled in the markets of ‘Silicon Alley’ around the Flatiron District, and in DUMBO in Brooklyn. The rise of the digital economy in New York City will continue to go hand in hand with rising real estate prices in these and other new emerging neighborhoods.
3. CONDOS RISING
New York’s prime residential market is dominated by two property types: cooperatives and condominiums (condos). Condos have historically been in short supply compared to coops, constituting only 25% of the market, but are effectively the only type of apartment building that is freely available to foreign buyers.
High demand from a broad base including foreign buyers (who plugged the gap left by domestic purchasers during the economic downturn) means that new condominium delivery has expanded rapidly since the late 1990s and early 2000s. Most has been targeted at the upper tiers of the market and has led to a widening in the price differential between coops and condos.
Average condo prices have grown by 82% since 2005, compared to growth of 47% in cooperatives. In 2015, Manhattan condominiums were on average 92% more expensive than cooperatives (Figure 3) with an average sales price of $2.4m, compared to the average coop sales price of $1.23m.
The rapid condo growth may have peaked, though. In 2015, for the first time since 2011, cooperatives outperformed condominiums, with price growth of 8% and 6% respectively. With the luxury condominium sector now looking fully supplied, we anticipate that the gap between coops and condos will close a little in the new few years.
FIGURE 3Condominiums vs cooperatives, price premium (Manhattan)
Source: ACRIS/Savills World Research
4. NEW IMPROVED PRODUCT
Manhattan’s new high-end condos sold at a significant premium to the resales market, at between $2,000psft and $7,000psft. Individual sales have set new price records for the United States on a dollar per square foot basis and distinct clusters of new product have emerged, establishing new prime areas in their own right.
The concentration of super-prime product around West 57th Street, including One57, 111 West 57th Street, 252 East 57th Street, 53W53,432 Park Avenue and 520 Park Avenue have led this Midtown location, historically known for its corporate headquarters and retail, to be dubbed ‘Billionaires Row’. Prices on these projects have topped $9,000psft, making Midtown one of the fastest growing prime markets in the last ten years. The upper end of this submarket is now fully supplied relative to recent absorption (Figure 4).
The High Line, a linear park built on a disused railway spur, has been a catalyst for new development on the West Side. Projects include Jardim and 520 West 28th Street, by the late Zaha Hadid. Downtown, the Financial District is seeing a wave of new condominium product, including One Seaport, a 60-storey super-prime tower.
Elsewhere, Hudson Yards, the largest private real estate development in US history, is set to establish the far west side as a luxury residential location. It has already raised $600m from foreign investors via the EB5 investor visa programme.
FIGURE 4Midtown condominium availability and absorption
Source: Stribling Marketing Associates
5. ELITE GLOBAL MARKETPLACE
Alongside home-grown talent, New York also attracts a diverse range of international buyers looking not just for a place to live and work but also to invest, led by those from Asia and Latin America. New York City is one of the few US markets to attract international buyers of ultra-prime property.
It is one of three global cities, along with London and Hong Kong, that has seen record deals in excess of $13,000psft, namely the sale of a penthouse at 15 Central Park West in 2011 to a Russian billionaire.
New York City is home to the greatest concentration of billionaires on the planet (Forbes). Hong Kong’s 53 billionaires, and London’s 19, compared to 74 in New York.
The US is a huge wealth generator and it is this that is now helping fuel the top end market. In 2015, Chicago-based hedge fund manager Ken Griffin signed a contract on a yet-to-be completed triplex penthouse at 220 Central Park South for $200 million – a new record in absolute terms.
Both American and global ultrahigh- net-worths seek out New York property for investment and a gateway world city base.