NEW YORK--(BUSINESS WIRE)--How do the experts feel about New York City’s (NYC) commercial real estate (CRE), and what factors will drive the market in 2016 and beyond? According to real estate professionals surveyed for Marks Paneth’s most recent Gotham Commercial Real Estate Monitor, a significant majority (62%) believe values have peaked (versus 48% just three months earlier), while only 31% believe values will rise in the next twelve months (versus 43% three months earlier). More executives now believe values will hold steady, 44%, compared to 31% three months earlier.
While a majority of respondents (64%) are optimistic about the prospects for NYC’s CRE market for the next year, an even larger majority (84%) believe that the market is overvalued, compared to other major cities around the globe.
“Despite peak value concerns, the strength of Manhattan’s underlying economy and the robust demand for properties are enough to inspire optimism in the majority of New York City commercial real estate professionals,” said William Jennings, partner-in-charge of Marks Paneth’s Real Estate Group.
Interest Rates
In Q4 2015, the Federal Reserve raised interest rates, setting funds at 0.25% to 0.50% percent, up from 0% to 0.25%. Chairperson Janet Yellen said that the Fed will likely raise interest rates again, slowly, as the economy improves.
Real estate executives were asked what they thought would be the effect of a 1% to 2% rate increase. Interestingly, 46% said that they thought the change would have a negligible impact on the NYC CRE market. Only 11% thought that the rate increase would have a major negative effect.
“One factor that is likely to minimize the negative effect of rate increases is the number of foreign buyers in the New York City market. Many of these buyers are more concerned about finding a safe haven for their investments than they are with maximizing yield,” added Mr. Jennings. “In addition, any effect will depend on the timing of – as well as the size – of interest rate increases. Yellen’s slow-but-sure approach to raising interest rates has likely gone a long way to reassure investors.”
Global Stock Market Volatility
More than half of executives surveyed (55%) said that global stock market volatility has a negative effect on CRE in NYC. However, nearly 30% said that frothy markets are good for NYC CRE.
Who is right?
“One of the effects of volatility in the financial market is diversification into other asset classes such as real estate, but there are other factors to consider as well,” said Jennings.
Effects vary by asset class and economic conditions in the buyer’s home country. For example, the recent downturn in China’s stock markets has certainly increased the capital flight from China, much of which is going into NYC’s residential market. Likewise, plummeting oil prices are likely to shift demand from luxury condos to income-producing commercial properties among wealthy buyers from oil-producing countries.
Taxes
Under IRS Section 1031, gains are deferred when “like-kind” business or investment properties are exchanged. The government is considering capping the gain deferral at $1 million. Will a cap affect CRE investment decisions?
More than half of the real estate professionals surveyed by Marks Paneth are also investors with active portfolios. A huge majority of them (over 75%) say that capping 1031s will affect their investment strategies.
What’s more, there was no variance in response by investment style – regardless of whether the respondent identified as a more conservative or aggressive investor.
Methodology
The survey was completed by 145 professionals working in New York City commercial real estate, including legal counsel, bankers and lenders, brokers and agents, developers, property managers and owners. The results reported here are based on completed self-administered surveys, fielded in late February and early March, 2016.
For more information, please contact John McKenna of ICR, Inc. at (203) 682-8252 or john.mckenna@icrinc.com. The full survey results can be found here.
About Marks Paneth
Marks Paneth LLP is an accounting firm with more than 600 people, including over 80 partners and principals. The firm provides public and private businesses with a full range of auditing, accounting, tax, consulting, trade remediation and valuation services as well as litigation and financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, hospitality, media, entertainment, nonprofit and government services clients. The firm has a strong track record supporting emerging growth companies, entrepreneurs, business owners and investors as they navigate the business life cycle. The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services.
In addition, Marks Paneth’s membership in Morison KSi Ltd., a leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world. Marks Paneth, whose origins date back to 1907, is the 34th largest accounting firm in the nation and the 8th largest in the mid-Atlantic region. In addition, readers of the New York Law Journal rank Marks Paneth as one of the area's top three forensic accounting firms for the sixth year in a row.
Marks Paneth is headquartered in New York City, with additional offices in Washington, DC, New Jersey, Long Island and Westchester. For more information, please visit markspaneth.com.
