Someone took a big bite out of the Big Apple. Commercial real estate prices in New York’s Manhattan suffered the steepest decline of any city in the country, according to a report by the Real Deal.
The commercial and multifamily assets of the skyscraper filled borrough were hardest hit. The news is a bit shocking but certainly not surprising as COVID-19 restrictions force many Manhattan office buildings to remain empty for months on end. New York’s outer boroughs also saw slight declines, and as professionals and families seek more space for at-home work and schooling, prices in the suburbs are on the rise.
Manhattan's story is not unique. Suburb prices are rising while urban area prices are dipping all across the nation.
According to Chicago Business, young professionals and families looked for more space in lockdown, pushing Chicago suburb home sales up 40 percent in 2020 while those for the city dropped almost 7 percent. Total home sales for the year came to 1,204, the lowest since 2016. Urban homes came in at 41 percent of that total, down from 51 percent in 2019. This increase in suburban home sales ultimately improved the overall market, as Chicago and seven nearby counties saw 2,922 homes sold for $1 million or more—the highest that annual figure has ever been.
The commercial hit is lessened for non-major cities whose growth slightly outpaced that of major cities in the past cycle.
Surprisingly, real estate prices in the U.S. have continued to rise since the last recession and were not majorly impacted by the COVID-19 pandemic. Still, some sectors and cities fared much better than others.
Drawing data from Real Capital Analytics’ US National All-Property Index, the report states that national price averages were up 7.3 percent from 2019 figures, with a late surge after the spring’s slowdown. Industrial and multifamily properties captured much of the growth, as their prices rose by 8.8 and 8.3 percent, respectively. As millions of employees were urged to work from home and customers shopped online, office prices rose by only 1.5 percent, and retail prices fell 4.3 percent.
The market story is ever evolving, and as the roll-out of vaccines gives investors reasons to be confident, property prices around the country could still fall if current financial pressures trigger more distressed asset sales.
“Nobody wants to take a loss on what is expected to be a temporary dislocation to income from the Covid-19 economic disruptions," RCA senior vice president Jim Costello is quoted in the Real Deal. “Borrowers and lenders will continue to paper over problems in line with this optimism. Still, even with anticipation of a temporary dislocation, some investors and lenders will not be able to hold on even with the finish line for the pandemic in sight.”
Read the full report via the Real Deal.
This story has been edited to correct inaccuracies. The original headline inaccurately noted that Manhattan home prices saw a drastic drop. Real Capital Analytics addresses commercial prices and not home prices.
Photography by: Gary Hershorn