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OLD FAVOURITE NEW YORK

The ‘Big Apple’ remains one of the world’s most popular real estate investment markets and given the city’s economic strength and lifestyle offerings it’s not hard to see why. Cityscape takes a look at various real estate sectors in the city.

November 2015

Thanks to its strong market fundamentals, New York has always been a highly popular market for global real estate investors looking for quality assets in one of the world’s most dynamic cities.

“New York is one of the world’s most important global cities and its real estate market can be compared to a small handful of competitors including London, Hong Kong and Paris. The city attracts investment from international high net-worth investors and second home buyers who are drawn to the city by the security of the investment, price growth and rental yields, combined with the lifestyle, culture and education offered by the city,” says Joanna Leverett, Head of International Residential Markets at Cluttons.

Being among the world’s top four cities for real estate investment, NYC offers some unique advantages over other global hotspots such as Paris and London, Leverett says. Commenting on the city’s residential sector, she says that “New York offers relatively good value compared to other global cities.” According to Cluttons, average property prices in New York are USD 2.1 million, which looks like good value on a global stage when compared to London (USD 3.1m), Paris (USD 2.5 m) and Hong Kong (a staggering USD 4.5 million). Furthermore, “New York has seen strong price growth over the last three years and also has relatively high rental yields of 5.9% compared to many global cities such as London,” Leverett says.

Part of the reason for the growth in international investor activity in New York can be found in the city’s economic performance. New York City remains one of the healthiest economies in the nation. On the back of the thriving economy, total employment reached new highs this summer, says JLL, with New York City’s unemployment rate having fallen to a post-recession low of 5.4 percent, nearing parity with the national rate of 5.1 percent.

The active job market is spurring leasing activity in the office sector while healthy income growth and record tourism are positive news for NYC’s the retail sector. On the residential front, new high-end developments in central locations see to it that wealthy second home buyers park their money in Manhattan. Let’s take a look at the different sectors in more detail.

Retail market

According to Cushman & Wakefield’s Manhattan Retail Snapshot Q2 2015, in the 12 months prior to June 2015 more than 114,000 jobs have been added in the city. “With more people working, total income in the city is rising rapidly. At the end of 2014, after-tax income was up 5.1% from a year earlier,” the report states.

In addition to this, New York is benefitting from continuing growth in tourism, with a record of 56.4 million tourists having visited NYC in 2014. Such positive figures bode well for the city’s retail sales.

“Healthy income growth and record tourism have combined to boost retail sales in NYC at a faster pace than the rest of the nation. In 2014 (latest data available), retail sales in NYC increased 5.3% from the previous year, well above the 3.8% increase recorded for the U.S. as a whole,” the Cushman & Wakefield report notes.

Consequently, asking retail rents increased during the second quarter of 2015 in five of the eleven Manhattan retail submarkets that are tracked statistically by Cushman & Wakefield. “The Upper Fifth Avenue shopping area, 49th – 60th Streets, continues to command the highest asking rental rate of all markets tracked, and indeed remains the highest in the world,” the firm says.

Looking ahead, Cushman & Wakefield expect solid income growth coupled with rising tourism to keep retail sales in New York growing at a strong pace for the remainder of 2015 and beyond.

Office market

New York is a major global tech city and strong employment gains mean office vacancy rates are falling while asking rents are rising. Buoyed by strong leasing activity in Midtown, Manhattan’s overall vacancy rate dropped to 8.8%, its lowest level since January 2009, says Cushman & Wakefield.

“New York has large and growing technology and creative industries that are pushing up prices and regenerating previously run down areas,” Joanna Leverett of Cluttons says.

While job growth in the three key office using sectors – financial services, professional and business services, and information — remains strong, the fact that the New York economy has grown strongly without a full recovery in the financial services sector emphasises the increasingly diversified structure of the local economy, with the technology, advertising, media, and information (TAMI) sectors becoming a more important contributor to the local economy, says Cushman & Wakefield.

According to the firm, in the first five months of the year, office-using employment increased by 12,000 jobs while the financial services sector accounted for 5,000 of the office-using jobs created so far this year.

With financial employment now growing at a stronger pace, local demand for office space is expected to remain strong through the balance of 2015.

Residential market

New York is one of a handful of global cities in which the super-rich most commonly hold residential property, reflecting the city’s status as one of the most important world cities, says Savills.

According to Savills’ recently released World Residential Markets 2015/2016 report, super-prime price records have been set at a staggering USD 13,000 per square foot. A number of new condominium developments have emerged at this level in recent years, such as in the iconic residential towers that include 50 United Nations Plaza, One57 and 432 Park Avenue.

Most importantly, New York rode out the global financial crisis better than much of the U.S. and now, prime residential prices are back at 2007 levels. The growing availability of high-quality new-build developments is partially responsible for the city’s positive performance, particularly over the past year, experts say.

For foreigners wishing to step into the New York residential market, the good news is that buying a property as a non-resident in the U.S. is fairly uncomplicated. There are no restrictions on buying and owning real estate in the U.S., and property may be occupied as a second home is the purchaser’s passport permits. For longer stays, residency may be achieved via a work visa, while immigrant investor visas can be obtained with a minimum investment of USD 500,000 – 1,000,000.

However, Savills says there are some possible impediments to investment in New York, which include associated costs and housing tenure. In common with the rest of the U.S., the entry, holding and exit costs associated with property are relatively high.

Outlook

In the words of Cluttons’ Leverett, “New York is one of the top cities in the world for finance, business, technology, culture and education.”

Given its status as an important world city, investors are likely to continue to be drawn to its various real estate sectors. According to Cluttons’ Leverett the Big Apple holds an advantage over other global hotspots such as Paris and London as it “still looks relatively good value on a global stage with prices lower than London and Paris.”

Whilst foreign buyers have traditionally made up a smaller proportion of the market in NY than in the other global cities, now that foreign interest in New York is rising, “market prices are likely to be pushed up,” Leverett says. “New York currently offers a good opportunity to invest in a global city and good values with a relatively strong rental yield,” she concludes.