When the latest reading on the Case-Shiller 20-City Composite printed within 1% of its record highs from 2006 a little more than a week ago, we asked a question that’s seemingly on every real-estate investors’ mind: Is this a “top” or a “breakout”?
And with the effects of the Trump tax reform plan – which is expected to hammer real-estate markets, particularly in high-tax blue – having yet to take effect, already states – one early indicator that softness might be entering one of the country’s most iconic (and expensive) real estate markets was reported by Bloomberg today. To wit, the trend of landlords handing out rental concessions continued to intensify in January, as landlords are increasingly being pressured to hand out incentives like rent-free months or gift cards to entice potentially renters to sign on the dotted line. Concessions jumped to a record in January, with 49% of newly signed leases coming with some kind of incentive, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.
That share surpasses the previous peak of 36% set just a month earlier.
All of these concessions have caused the median rent to drop 3.6% from a year earlier to $3,141 – the biggest decline since October 2011 – interrupting six years of near-constant growth.
“Landlords have finally realized, ‘OK, we have to adjust these prices because the concessions aren’t doing as much,'” said Hal Gavzie, who oversees leasing for Douglas Elliman. “Customers are looking past the concessions being offered and just looking for the best deals they can find.”
Rents fell last month in almost every Manhattan neighborhood, including some of the borough’s priciest, Citi Habitats said in its own report. On the Upper West Side, the median was $3,450, down 2.8 percent from a year earlier. Rents in the West Village dropped 4.5 percent to $3,700, while on the Upper East Side, they declined 5.3 percent to $3,185, the brokerage said.
“The dynamic has shifted,” with Brooklyn, Queens and the New Jersey waterfront becoming viable options to many renters,” said Gary Malin, president of Citi Habitats. “Tenants are looking for value, and they’re open to suggestions.”
While these data strictly apply to the rental market, we pointed out last year, the commercial real-estate market is having problems of its own: In September, we noted that sales of commercial real-estate plunged 50%, bringing commercial property purchases to their lowest level since 2012. And that problem isn’t isolated to NYC: Sales of commercial real estate are plunging across the US, and have been since peaking at $262 billion nationally in 2015.
And of course this was before HNA announced this morning that it would be liquidating $4 billion in US commercial real estate across New York City, San Francisco and Chicago and Minneapolis.
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But Manhattan isn’t the only high-end luxury market showing signs of softness. In London, according to the Financial Times, the gap between what sellers are asking and buyers offering for high-end homes is greater than it was in either 2008 or 2009.
But according to one real-estate market analyst, reality is beginning to set in for sellers.
Marcus Dixon, head of research at LonRes, said buyers were becoming more confident in demanding discounts and sellers were ore likely to accept lower offers. “People are going in with relatively cheeky offers, and sellers are accepting them,” said Mr Dixon. “There’s a bit of realism creeping in about what properties are worth.”
LonRes’s data cover London’s most exclusive districts, including Kensington and Chelsea, as well as prime parts of the capital extending from Canary wharf in the east to Richmond in the west and Hampstead in north London.
Outside the most expensive “prime central” areas, discounts to initial asking price stood at just over 9% – the highest level since 2009.
In a phenomenon that’s also manifested in some of America’s toniest zip codes – namely, Greenwich, Connecticut – some sellers are opting to take their homes off the market to wait for another day.
Many sellers have resisted dropping the prices of their properties, instead choosing to withdraw them from the market. Transaction volumes fell across central London in 2017, with the number of properties sold down 3.6% over the year as fewer homes were put to the market.
LonRes said people were still taking their homes off the market if they could not achieve their desired price. More than half the homes leaving the market in the fourth quarter of 2017 were withdrawn rather than sold.
To be sure, some sellers are still accepting lower offers – but the post-crisis boom times are over, one real estate analyst said. And, as of now, there are few signs to suggest an imminent return.
“There have been some transactions – but it’s not boom time,” said Mr. Scarisbrick. “It’s becoming obvious that you don’t set foot in the London market unless you really need a London house.”
Foreign buyers, who are attracted by favourable exchange rates between sterling and most currencies, were an exception, he said.“You can do well if you roll your sleeves up and get involved in a proper negotiation,” he added.
“But I can’t see any catalyst for a resurrection in the market.”
Some sellers are opting to cut their losses.
“Sellers are saying, ‘if I get a buyer at a reasonable level, I’ll do a deal,'” said Charles McDowell, who runs a prime London estate agency.
“There are deals being done- quite big ticket deals – but this is certainly a market where buyers perceive value.”
If there’s value to be found now – just wait another 14 months until April 2019, when the UK’s departure is expected to be complete.
And with cryptocurrency prices tanking after last year’s bubble, the great crypto-fueled property boom has seemingly fizzled before it even began.