London’s real estate recovering faster than NYC’s
Crain's New York Business reports: While real estate investment markets in both London and New York were devastated by the global economic crisis, it’s the financial capital on the eastern end of the pond that seems to be recovering more quickly.
In London, 52 office buildings worth more than $20 million were sold or in contract to be sold in the first six months of the year, compared with a mere nine in New York, according to data from Real Capital Analytics. And the pace of sales in London is strengthening, with 37 of the buildings trading in the second quarter.
Each city is struggling with higher vacancy rates and lower rents. So why do investors seem more eager to leap into London?
Real Capital Analytics managing director says London’s building owners may be more willing to accept the fact that real estate prices have indeed fallen and won’t be recovering anytime soon.
“I think when [it comes to] accepting that prices have corrected, London is just in a different ballpark,” said Dan Fasulo, managing director of Real Capital Analytics. He noted that because the recession hit earlier in London, people there have had longer to adjust to the new environment.
The types of buildings that have been sold lately in Manhattan likely contribute to investors’ skittishness about buying here. For example, both 1540 Broadway and Worldwide Plaza were a part of a distressed sale; each is either substantially vacant or faces major tenant turnover.
The broader problem in Manhattan: No one is certain how much to bid for a building that is fully leased.
SL Green recently reached a deal to sell half of 485 Lexington Ave., a well-located tower that is 97% occupied, for a deal that valued the building at $547 a square foot. Meanwhile, HSBC is trying to orchestrate a sale-leaseback deal for its Fifth Avenue location and J.P. Morgan Chase & Co. is seeking to do the same for at least one of its properties in Manhattan. All those deals together could help set a price floor in New York.
“We need to have a ground breaking sale,” Mr. Fasulo said.
London may also be ahead of New York because buildings there tend to be smaller, so they require less cash. Last year, the average deal size in London was $83 million, while in Manhattan it was $172 million.
Manhattan appears to be the bigger bargain for now. Prices have tumbled 41% here this year, to $462 a square foot, while in London they’re off 27%, to $844 a square foot. However, Mr. Fasulo noted that the wide difference in the number of transactions voids a true comparison.
View the full article on Crain's New York Business: London’s real estate recovering faster than NYC’s
Posted by: Nina Turner