Prime property prices in New York driven by strong demand and limited supply

Image A global powerhouse, domestic and international wealth has fuelled the expansion of New York’s prime residential real estate markets, according to a new analysis report.

New York is one of the most diverse, globally connected and high performing cities in the world and alongside London, it stands apart from any other city as a true global powerhouse, says the prime residential report from international real estate firm Savills.

It points out that as a world leader in financial services, technology and media, New York hosts a large number of global company headquarters, is an important centre of education and a tourism destination.

“The sheer diversity of factors in the city’s success make New York’s residential real estate highly sought after, from the international wealthy seeking a foothold in a global city through to local young families realising the appeal of urban living,” reported by propertywire.

It explains how strong occupier demand and limited supply has pushed up prices so affordability is a growing issue for many. However, although costly by US standards, prime New York residential real estate is still relatively good value by global levels.

For example, prime property prices in New York are 35% less than London and 61% below Hong Kong. But prices are rising, up by 42% from $1,200 per square foot in 2008 to $1,700 per square foot in 2015.

The longest established prime residential markets are in Manhattan on the Upper East Side and Upper West Side, bordering Central Park. The Upper East Side is known for its large, classic New York apartments, while the Upper West Side is a somewhat more relaxed and accessible alternative. Together, these two large neighbourhoods accounted for 38% of all $1 million plus transactions across Manhattan and Brooklyn in 2015, and 47% of all $5 million plus transactions in 2015.

The report explains how the generation of new wealth in the city has pushed the prime markets into new neighbourhoods. The Financial District saw 385 deals over $1 million in 2015, more than 10 times the 35 deals recorded in 2005. Harlem, Williamsburg and Park Slope all saw increases of a similar magnitude and even Downtown Brooklyn, a market where no deals over $1 million were seen in 2005, recorded 64 such deals last year.

At the upper end of the prime market, Chelsea, Greenwich Village, Tribeca and Midtown have all seen rapid growth in the number of $5 million plus sales. From just a handful each in 2005, all these neighbourhoods recorded more than 50 in 2015.

This comes as new condominium stock is delivered to appeal to the super prime market, the report says and price growth has been especially apparent in Midtown where many super prime condo schemes are concentrated. The average sales price here rose by 193% to $3.8 million in the 10 year period.

New York’s prime residential market is dominated by two property types: cooperatives and condominiums (condos). Condos have historically been in short supply compared to coops, constituting only 25% of the market, but are effectively the only type of apartment building that is freely available to foreign buyers.

High demand from a broad base including foreign buyers, who plugged the gap left by domestic purchasers during the economic downturn, means that new condominium delivery has expanded rapidly since the late 1990s and early 2000s. Most has been targeted at the upper tiers of the market and has led to a widening in the price differential between coops and condos.

Average condo prices have grown by 82% since 2005, compared to growth of 47% in cooperatives. In 2015, Manhattan condominiums were on average 92% more expensive than cooperatives with an average sales price of $2.4 million, compared to the average coop sales price of $1.23 million.

But the report points out that this rapid condo growth may have peaked. In 2015, for the first time since 2011, cooperatives outperformed condominiums, with price growth of 8% and 6% respectively. With the luxury condominium sector now looking fully supplied, we anticipate that the gap between coops and condos will close a little in the next few years.

The report also points out that New York attracts a diverse range of international buyers looking not just for a place to live and work but also to invest, led by those from Asia and Latin America.

‘New York City is one of the few US markets to attract international buyers of ultra prime property. It is one of three global cities, along with London and Hong Kong, that has seen record deals in excess of $13,000 per square foot, namely the sale of a penthouse at 15 Central Park West in 2011 to a Russian billionaire,’ the report says.