Q1 2023 Commercial Real Estate Report, New York, NY
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After strong performance in multiple sectors last year, New York's commercial real estate market is starting to moderate. Sales are down in most sectors, though rent increases remain within historic averages.
Although New York office space struggled, New York industrial, multifamily, and retail all saw appreciable gains and good fundamentals despite economic headwinds.
General New York Commercial Real Estate Market Trends
The average price per square foot across all types of commercial real estate in New York increased by 0.26% in the past 90 days to $64.70 per square foot, and the median price increased by 0.58% to $114.72 per square foot.
The average size of available properties is 12,763 square feet, and the median size is 4,479 square feet.
Notable Commercial Real Estate Transactions in New York in Q1 2023
Below is a list of some of the most notable New York commercial real estate transactions in Q1 2023.
- NYFD's 200,605 square foot lease in Central Queens;
- NYCDOT's 154,221 square foot lease in North Brooklyn;
- Insurance Auto Auction's 16-acre lease at 1900 South Street;
- Forest Investment Group's purchase of 273 multifamily units at $2.19 million per unit;
- Avanath Capital Management's purchase of 250 multifamily units at $405,000 per unit;
- LVMH's 43,500 square foot lease at 4 E 57th Street; and
- Barnes & Noble's 34,536 square foot lease at 557 Fifth Avenue.
These are select examples among other activity.
New York Office Space Performance in Q1 2023
New York's office space market had a slow quarter, experiencing some of the lowest leasing activity since Q1 2021. About 1.4 million square feet of negative absorption occurred, and total vacancies increased 40 basis points from last quarter to 16.1%.
Total leasing activity was about 4.6 million square feet, a 26% YoY decrease from Q1 2022. About 30% of the lease share was renewals compared to just 19% last year. Average prices for New York office space climbed over 5% in the past 90 days to an average of $46 million.
Direct asking rates remained virtually unchanged this quarter at an average of $82.50 per square foot. Average Class A and Class B asking rents were $93.29 and $62.20 per square foot, respectively. The submarket with the highest average asking rates was Hudson Yards, at $144.01 per square foot.
New York Office Space Construction and Volume
New York delivered roughly 1.5 million square feet of product inventory, which effected absorption and vacancy rates. This new addition put total vacant space at an all-time high of nearly 75 million square feet.
New York currently has 13.6 million square feet of office space under construction, with about 7.7 million square feet slated for Downtown and 4.6 million feet for Midtown. Virtually all of this new development is Class A office space, which continues to outperform Class B and lower properties.
New York Industrial Real Estate Performance in Q1 2023
Compared to last quarter, New York industrial real estate slowed slightly in Q1 2023, but fundamentals look good despite the moderation.
Average asking rates for New York industrial real estate rose to a record high of $25.32 per square foot, representing a 1.7% increase from Q4 2022 and an 18% YoY increase.
Absorption was positive this quarter at 359,312 square feet, down from 819,682 square feet in Q4 2022 and 2.6 million square feet in Q1. Availability rates also ticked down 10 basis points to 6.6%.
Much of the activity in the city's industrial space came from government occupiers, along with demand for storage space and parking.
New York Industrial Real Estate Construction and Volume
New York added about 2.4 million square feet of industrial inventory this quarter, reaching a total product inventory of 159.6 million square feet. The city currently has 3.3 million square feet of industrial space under construction—a decrease from 4.7 million last quarter.
Of the space under construction, about 20% is pre-leased and 88% are multistory buildings. Construction activity remains above historical averages, though rising interest rates and construction costs could delay projects currently in the pipeline.
New York Multifamily Real Estate Performance in Q1 2023
After showing some impressive performance through the back half of 2022, New York multifamily real estate moderated this quarter back down to 2020 levels. Average asking rates rose to $3,003 per month, a 0.6% increase from Q3 2022 and a 2.8% YoY increase.
New York multifamily Vacancy rates also saw a quarterly decrease of 80 basis points to 2.9%, reflecting housing supply constraints. Net absorption this quarter was also positive at 22,779 units, although this number is down from 65,618 square feet of positive absorption in Q4 2022.
New York Multifamily Construction and Volume
New York delivered 3,793 new multifamily units this quarter and has an additional 65,618 multifamily units under construction as of the end of Q1 2023. New York multifamily sales totaled $1.63 billion, representing a 58% decrease from 2022's high numbers.
The most active submarket for multifamily sales in Q1 2023 was Brooklyn, though total sales activity nearly halved. The submarket with the highest multifamily price growth was also Brooklyn, with a 21% price-per-unit increase.
New York Retail Performance in Q1 2023
New York retail space saw increased demand in Q1 2023, with rising leasing activity and rents. Average asking rates for New York retail space in Manhattan jumped nearly 3.4% from last quarter to $638 per square foot—the third straight quarter of rent increases. The taking rent index is now at 75.5%, which is the highest it's been since 2017.
Total four-quarter leasing activity for New York retail space had a 5.4% quarterly increase and a 14.5% YoY increase. Availability rates are also falling, with a 7.2% quarterly decrease and a 16.6% YoY reduction. The Flatiron Fifth Avenue corridor saw an incredible 46.2% quarterly decrease in availability rates down to just 7 availabilities.
Takeaways for New York Real Estate Investors
New York had a relatively positive quarter, despite the general decrease from last year's frenzied activity. New York industrial and retail space, in particular, were standout performers in Q1 2023. Multifamily rents increased this quarter, but sales dramatically decreased.
New York office space, however, continues to falter thanks to a lack of demand and the prevalence of remote work. Office space owners will need to adopt a wait-and-see approach and focus on lease renewals.
In the meantime, general New York commercial real estate prices continue to climb. New York is one of the most expensive places to buy commercial real estate, and that doesn't seem to be changing anytime soon.
Methodology
This report was written with property information from the MyEListing.com platform in corroboration with other freely available commercial real estate research data.
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