The Real DealJanuary 01, 2014Sure, nobody knows what’s actually going to happen in the New York City residential real estate market in the New Year. But it’s still fun to guess.
In this month’s Q&A, The Real Deal asked residential brokerage heads, market analysts and developers to give us their best educated guesses on everything from residential pricing to how the beginning of Mayor Bill de Blasio’s term in City Hall will impact the market.
Most seemed to be in agreement on at least one thing: the 2014 market will not be able to sustain the pace of the 2013 market. But, they said, that’s more a function of the record-setting pace of nearly every metric in 2013 than it is of the coming year.
“It’s unrealistic to expect deal volume to compete with what we just experienced, so I would lower my expectations on the future pace of contract activity and ultimately price action for 2014,” said Noah Rosenblatt, the founder of brokerage and research platform UrbanDigs.
While Rosenblatt and others said a shortage of inventory will continue into the New Year and will lift prices, some said buyers have hit their limit on price increases. That’s partly because much of the inventory that is coming on the market is being “posited toward the ultra-luxury buyer,” said Core CEO Shaun Osher, who noted that the “affordable luxury” sector —between $1.5 million and $3 million — is still seeing a void of quality product. He said anything listed in that price range this year will do well.
In addition, several sources said they didn’t expect de Blasio’s first year in office to impact market conditions immediately, partly because it will be hard for him to get anything passed in Albany because of the state elections this year. But they said, depending on what the new mayor does this year, his presence could impact the pipeline of residential product more long-term.
For more on which areas of the city are expected to do best and worst, what developers are looking out for, and what to anticipate in
terms of a residential bubble, we turn to our panel of experts.
Shaun Osher: founder and CEO, CORE
NYC’s residential market has strengthened beyond what many could have anticipated a year ago. What are you expecting to see in the New Year? Where do you expect the market to be a year from now?
A year from now I think we will be in a more stabilized place and I don’t think there will be the rate of appreciation in property value that we have seen over the last 12 months. We have actually seen a bit of a slowdown in appreciation on values and a little bit of a slowdown on some absorption.
The residential inventory shortage is obviously one of the big factors driving market conditions right now in NYC. What are you expecting on the inventory front in the coming year?
There is not much of a pipeline of new product coming on the market in terms of numbers. We are still historically low with respect to inventory. There are less than 5,000 available units on the market right now. We are at 50 percent of where we should be. There are a number of new projects coming on the market, but in total unit numbers, it’s going to have an insignificant impact on inventory. I think there is going to be a housing shortage and I think the shortage is going to be exacerbated by the fact that a lot of the inventory that we are going to see coming on the market is going to be posited toward the ultra-luxury buyer.
Residential sellers had the upper hand in 2013. Do you expect that to continue in 2014 or do you expect that dynamic to change?
I expect the dynamic to change slightly because buyers feel that value has reached a threshold. Buyers are going to start saying no to irrationally exuberant values. So I think we are going to see a more stabilized market where the momentum will go more to the buyer and there will be more equilibrium.
Sales volume hit the second-highest level in Manhattan in 24 years in 2013’s third quarter. What are you expecting when it comes to deal volume in the coming year?
It’s going to have to slow down at some point, but I don’t see that happening over the next 12 months because of the shortage. Absorption on market-rate properties will be very quick. Good product in a strong market will always sell very quickly.
The luxury market obviously did extremely well in 2013, but some have expressed concerns that developers are now paying too much for land and banking on getting per-square-foot prices that are unrealistic. What do you expect from the luxury sector in the coming year?
I agree with that statement and I think that the luxury sector of the market is going to feel some pressure, especially where developers need to meet certain prices because of the land cost and construction cost. Any developer that is expecting prices in a neighborhood that won’t command them will be caught with their pants down.
Which sectors of the market do you expect to perform well in NYC this year?
The market that has the largest void is the affordable housing in the luxury segment — anything priced between $1.5 million and $3 million. There is a void of good quality product in that category. Anything at that price point should do better than any other segment of the market.
Which geographic areas do you expect to struggle most in NYC in the coming year?
Anywhere that is too pioneering, where they are demanding prices that are too high for the neighborhood. It will be interesting to see what Hudson Yards does, but I am very bullish on West Chelsea and Tribeca and the fringe areas around those neighborhoods. The neighborhoods that could be disappointing would be Hell’s Kitchen and pockets of the Far East side.
What are your thoughts on a residential bubble? Do you have concerns about that in the coming year?
I think certain segments are in a bubble. There is always a concern about an unforeseen event that is going to initiate a correction or adjustment.
What new, big residential projects (other than One57 and 432 Park) do you expect to generate the most buzz in the NYC residential market in the coming year?
Larry Silverstein’s Four Seasons [hotel and condo] project in the Financial District will be one to pay attention to because it’s uncharted territory where prices have not been tested.
What impact, if any, do you think the new mayoral administration will have on the residential market in the coming year?
In the next 12 months, almost none. But it will have an impact into the pipeline of product for the next five years.