This is What Happened to Sales & Prices of Manhattan Office Buildings as Chinese Buyers are Suddenly “Absent”

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by Wolf Richter, Wolf Street:

The formerly hottest trophy market gets a dose of reality.

The rigorous and broad-based crackdown by the Chinese government on capital flight, and particularly on overseas investments in risky real estate by over-leveraged Chinese conglomerates, is reverberating through the priciest trophy office market in the US.

For the year 2017, sales of large office properties in Manhattan – after a terrible Q3 and a partial recovery in Q4 – fell to just 32 transactions, totaling $11.4 billion, according to CommercialCafé. The annual dollar sales of office buildings was down…

  • 43% from 2016
  • 53% from 2015
  • 31% from 2014
  • 28% from 2013

CommercialCafé explains the phenomenon: “The last three months of the year also seemed to confirm what industry experts had predicted for a while: given the increased scrutiny exerted by Beijing on outbound investments, Chinese buyers are disappearing from the U.S. office limelight.”

In other words, without Chinese conglomerates buying up trophy properties at extravagant prices, it’s getting tough out there:

CommercialCafé, a division of Yardi, used Yardi Matrix data to analyze all Manhattan office transactions recorded by January 1st, 2018, of $5 million or more, and larger than 50,000 square feet. In the case of mixed-use properties, only those with over 50% office space were taken into account.

After the frozen-over Q3 when only 6 large office deals closed totaling a paltry $990 million, Q4 experienced somewhat of a thaw, with 10 large deals, totaling $4.6 billion.

The report blamed “dwindling supply and intense competition for high-quality assets” for the low sales volume. However that may be, the average price per square foot in Q4 dropped to $729, which was down 16% year-over-year, down 40% from the peak in Q1 2016, and the lowest amount since Q1 2014. It’s not exactly a testament of red-hot demand:

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