NYC Office Condo Market Report — First Half 2020

At a Glance

• The Market Has Halted: Due to the impact of COVID-19, Manhattan saw a 66% decline in office condominium sales, the lowest amount of square footage sold in a half year period in more than a decade.
• Sales Prices Dip Slightly: The average sales price per square foot decreased 6.8% to $826 per square foot, down from an average of $886 per square foot in the second half of 2019. The total value of sales dropped 64% from $258,737,909 to $80,937,095, respectively.
• Conversions to Office Condominiums During Crisis: Many of Manhattan's most active office condominium buildings were created during times of distress, including the early 90's and 2000's. As landlords faced rising vacancies and heavy debt loads, office condominium conversion strategies proved to be a creative and profitable solution.

Market Overview

The Manhattan office condominium market is made up of 103 buildings, occupying a total of 11.2 million square feet. The Midtown submarket is comprised of 6.1 million square feet; Midtown South is comprised of 3 million square feet; Downtown is comprised of 2.1 million square feet. There are 3.4 million square feet of Class A office condominiums, 5.5 million square feet of class B, and 2.3 million square feet of class C.

The first half of 2020 saw just 97,969 square feet of office condominium sales in Manhattan totaling $80,937,095. There was a total of 17 office condominium sales (averaging 5,763 square feet) across 14 different buildings for an average of $826 per square foot.

Square Footage of Sales

The 97,969 square feet of total sales was less than half the amount sold in the second half of 2019, which totaled 292,068 square feet. The total square footage of sales in the second half of 2019 is also considerably lower than the five-year average of 176,307 square feet per half-year.

Dollar Value of Sales

In the first half of 2020 office condominium sales totalled $80,937,095, significantly lower than the $258,737,909 in sales in the second half of 2019. The dollar value of sales is 46% less than the five-year average of $150,787,146.

Average Price Per Square Foot

In the first half of 2020, the average price per square foot was $826, 6.7% lower than the second half of 2019 average of $886 per square foot and 3.4% lower than the five-year average of $855 per square foot.

Number of Sales

There were 17 sales in the first half of 2020 compared to 19 sales in the second half of 2019. The number of office condominiums sold in the first half of 2020 was lower than the five-year average by eight sales.

Submarket Statistics

The Midtown submarket is Manhattan's largest office condominium submarket, comprised of approximately 6.1 million square feet. In the first half of 2020 there were 11 sales totaling 67,478 square feet. The dollar value of these sales totaled $55,182,175, averaging $818 per square foot.

The Midtown South submarket is comprised of approximately 3 million square feet of office condominiums. In the first half of 2020, there were four sales totaling 21,676 square feet. The dollar value of these sales were $17,977,920 and averaging $829 per square foot.

The Downtown submarket is comprised of approximately 2.1 million square feet of office condominiums. In the first half of 2020, there were two sales totaling 8,815 square feet. The dollar value of these sales were $7,777,000 and averaging $882 per square foot.

Availability

Currently, there is 1,004,748 square feet of office condominiums available in Manhattan (121 units are for sale across 57 buildings), which equates to a 9% availability rate. The average asking price is $902 per square foot. In the Midtown submarket, there is 620,381 square feet for sale with an average asking price of $940 per square foot. In the Midtown South submarket, there is 153,341 square feet for sale with an average asking price of $995 per square foot. In the Downtown submarket, there is 231,026 square feet for sale with an average asking price of $754 per square foot.

When commercial landlords struggle with vacancy in a down market, a condominium conversion can be a unique and successful strategy.

While the long-term ramifications of COVID-19 will have on the Manhattan office market remain unclear, it appears inevitable that owners will see an increase in vacancy rates over the next several quarters. As vacancy rates increase many landlords will be unable to pay their mortgages, and may lose their building to foreclosure.

During times of distress, one of the most successful strategies that landlords have deployed is the office condominium conversion. An office condominium conversion enables owners to sell the vacant space(s) directly to owner/occupiers, giving them the ability to pay down their mortgage and retain ownership of the income producing, occupied portion of the building.

Limited Supply

One of the biggest benefits of the conversion strategy is the uniqueness of the offering itself. Of the 500 million square foot office market, less than 2% is composed of office condominiums. Unlike the office leasing market, which is expected to be flooded with available direct and sublease space, the office condominium market will continue to have a very limited available supply — even in a down market.

Buyer Demand

In an office market long dominated by leasing options, the basic lack of well-priced, high-quality properties for sale proves to be the chief impediment to owning and occupying office space. In a down economy, companies and organizations with an eye on their bottom line will be increasingly attracted to the benefits of owning their own space. Office condominium ownership allows businesses and organizations to stabilize their office expenses, protect themselves against future rent increases as the market recovers, and due to appreciation, can become a profitable investment over time.

In addition, the Federal Government's SBA loan program offers businesses the opportunity to purchase office condominiums with loan-to-values as high as 90% with historically low interest rates, fixed up to 25 years.