Manhattan Office Bubble Fizzles Without Big Chinese Buyers

Tyler Durden's picture

Authored by Wolf Richter via WolfStreet.com,

Sales volume in Q3 plunges 67% from a year ago.

Manhattan, the biggest most expensive trophy market in the US for commercial real estate, used to be particularly appealing to exuberant foreign investors, such as Chinese conglomerates. But in the third quarter, sales volume of large office properties (minimum $5 million and 50,000 sq. ft.) plunged 67% year-over-year to $991 million, the lowest in five years. It was down 90% from the peak in Q1 2015.

“Q3 2017 might signal a return to normalcy for the highly sought-after Manhattan market,” the report by Yardi Systems’ Commercial Café commented.

This chart shows the dollar sales volume of large office properties. The $991 million in Q3 is rounded up to $1 billion:

The number of closed deals plunged 40% to just six transactions, according to Commercial Café. That’d down 71% from the peak in Q1 2015:

The average price per square foot fell 19% year-over-year and is down 32% from the peak in Q1 2016, but is up from Q1 2017 and about flat with Q3 2015.

As this chart shows, the average price per square foot varies based on a number of factors, including seasonality, but with a trend since the peak in Q1 2016 that doesn’t look promising:

The largest deal was the $465-million sale of 375 Hudson, a 19-story, 1 million-square-foot Class A property, acquired by Trinity Real Estate, the real estate arm of Trinity Church (51% stake), Norges Bank (48% stake), and Hines Interests (1% stake).

What’s sorely missing? The big transactions at inflated prices by Chinese buyers, such as the $2.2 billion purchase in May of 245 Park Avenue by the Chinese conglomerate HNA Group that had boosted Q2 sales. The deal was more than twice the size of the six transactions in Q3 combined. At $1,282 per square foot, it was also “among the highest price-per-pound for this type of asset” ever recorded in Manhattan, as it has been described. Those trophy purchases by Chinese conglomerates really moved the needle.

But now the large Chinese conglomerates that had considered the Manhattan office market their trophy hunting grounds were absent.

This absence follows the crackdown by China’s State Council on cross-border transactions. Its guidelines spell out what Chinese companies can and cannot acquire overseas to “promote healthy growth of overseas investment and prevent risks,” as the guidelines said.

Some transactions are still desirable according to the guidelines, with a big emphasis on China’s “Belt and Road Initiative” in Central Asia and on companies that “take the lead to export China’s superior technology and equipment, upgrade the nation’s research and manufacturing ability, and make up the shortage of energy and resources through prudent cooperation in oil, gas and other resources.”

Other overseas investments will be “restricted,” including “real estate,” “hotels,” and “entertainment.”

So here we go. Over the past few years, and building up into a powerful crescendo that culminated just a few months ago, Chinese conglomerates have been buying up whatever they could get their hands on with precariously borrowed money. But now they’re being reined in by Chinese authorities who are worried about the soaring debt levels of those conglomerates and about their acquisitions at inflated prices and about a financial crisis that these debt levels could trigger when they go bad. And trophy markets, such as Manhattan, are among the first to feel the effects.

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Escrava Isaura's picture

Elections have consequences.

Economics nationalism can’t work at the current fragile system that we became. Trump will be a disaster for Americans, even more so for the people that voted for him than the New Yorkers real estate.

Second, economics nationalism can’t work in an industrialist society. Nationalism and industrialization are not comparable, because industrialization needs lots of resources and energy, meaning dealing with other nations for those resources.

As well as a market with enough liquidly ‘credit or capital’ to sell their production.

 

The indoctrinated and naive doesn’t see danger till it’s at their throat.

 

 

null's picture

Oh, the despair. Please save us from the loss of temporary politburo money-laundering. Please Hillary, anyone, take all the uranium but keep the criminal-bazaar going at any cost. Waaaaa.

Truther's picture

And all your offices are belong to us.

Endgame Napoleon's picture

But we all — foreign and domestic — need less office space due to automation-based underemployment, which the MSM do not care about because they assume the dual, high-earner “working families” and the welfare-aided “working families” will not be affected.

And they aren’t as much so far because of 1) the buffer of a spousal income, 2) the cushion of a child-support check that covers rent or 3) monthly welfare that covers rent and food and child-tax-credit welfare between $3,337 (for producing 1 future worker to compete with robots for jobs) and $6,269 (for producing 3 or more future workers to compete with robots for jobs).

Automation-based underemployment is already killing Americans who have just 1 earned-only income stream to cover all of their household bills—unaffordable rent included. It may also kill commercial real estate.

null's picture

Ditto.
And “you” are apparently a few thousand mandarins keeping the house of cards from crushing a billion peasants.

But now I am doubting that the mandarins have granted you the privilege of speaking for them. Oops?

jcaz's picture

Beaner!   Up early today, I see!   Reading your jibberish always makes me laugh-  a reminder why Brazil will always be a 3rd-world shit hole.......

Great Advances By Mankind Thanks To Brazilians:

1)  Waxing.

2)  Uh..... Still working on #2.....

A  Brazilian explaining economics makes as much sense as Hillary Clinton lecturing about Ethics at Columbia......

Endgame Napoleon's picture

Which is worse:

1) Hillary lecturing on the subject of ethics,

2) Hillary lecturing on the subject of Fake, Womb-Privileged Feminism

?

(......audience hears the sound of nails scratching on a chalkboard)

abit89's picture

Are you saying the fact that Trump won is a negative consequence?

Escrava Isaura's picture

I hope not but I think he will, because he won’t make America more productive and fearer.

The liberal approach of trying to reflate is bad, and that his base knows too well, however, deflating is a lot worse than inflating.

Second, his tax policies enrich the rich while hearting most Americans. C’mon, the rich Americans don’t need help.

Third, he never addressed the debt that needs to be written off. Or most of it.

More profit and more tax for the rich are not what are needed, period.

What is needed is that Americans become more educated about money.

 

silverer's picture

You are a little behind the curve. The disaster that befell Americans started around 1980. Made possible by the non Federal entity called the Federal Reserve, circa 1913. Too late to hang it all on Trump, sorry.

Escrava Isaura's picture

This post by SeaMonkeys I found to be very helpful in connecting the ‘big’ dots.  

I agree with most of what you say, except the part about Jews and the first sentence equating finance capitalism with communism.

As you know, Friedrich List was the father of economic nationalism, and this is what Bannon draws upon. WW1 was a war that Germany should have won. The world might be a beautiful place today had they done so. Anglo capitalism and its money markets was what triumphed. So much of our troubles today can be traced back to this sad outcome to WW1. If Germany had won, it's conceivable that the Soviet Union might have become a healthy productive force and the East and the West might have been able to synthesize a more productive and fairer political economy for both capitalism and communism. Just my own speculation, nothing more.

The Anglos used money markets and bank lending for the purpose of profit, with no concern for the welfare of the community, and Germany did the opposite-Werner's window guidance. 

You should read Costas Lapavitsas' "Profiting Without Producing." The first part of the book goes over 19th and early 20th century German finance up to Rudolph Hilferding.

You should also read Erik Reinert's "How Rich Countries Got Rich and How Poor Countries Stay Poor." He is a heterodox economist and draws upon many, including Karl Menger, Joseph Schumpeter, Friedrich List, and Werner Sombart, who you've written about in the past.

Google WW1 propaganda posters for the Germans and for the English and Americans. The Anglos were sick and disgusting. The Germans were noble. 

I like your postings. You should tell us what you think, in the affirmative. What is your take on things. Please don't fall into the trap of looking for the Jewish scapegoat-you'll miss the forest for the trees. Sombart did, and he was a genius in spite of it, not because of it. 

Bannon is right about the Democrats. The only thing they have is identity politics. They killed Bernie Sanders' campaign, which opened the door for Trump (Bannon). Economic populism is what this country needs. I disagree with Bannon that it has to take the form of nationalism, because we live in a world of accelerating increasing returns that is far outpacing what labor can contribute. Our problems are more fundamental than just plain old us vs. them. 

But Bannon and Sanders understand the political economy. I don't mean to elevate Sanders (or Bannon) above good economists, like Richard Werner or Joseph Huber, who truly get it. But since our choices in America are limited to the puny menu selection of red meat and blue meat, I have to talk about them.

http://www.zerohedge.com/news/2017-08-16/bannon-breaks-silence-slams-far-right-clowns-goldman-lobbyists-vows-economic-war-chi#comment-10085060

 

Omen IV's picture

The Chinese were nationalists in the last 25 years and they had capitalist industrial growth so did the Koreans

all in the interest of maintaining employment for the masses - so did the USA from inception until the policy changed - 1965 / 1975

Xena fobe's picture

If only we had some economic nationalism.

abit89's picture

There are always a lot of speculative comments on here.  Over and over again.  I have analyzed the sitch and have come to the conclusion that any decisions regarding stocks or gold need to be run through the guys at Shepwave. As far as I can tell their record continues to be the only legitimate one left on Wallstreet. This gloomy market scenario by a lot of news agencies will happen but I have seen way  too many people on here lose money because of thinking they can make profits from being bearish in the stock markets.

jcaz's picture

I prefer Moewave, Larrywave, or Curlywave over Shepwave..... Clueless fucking spammer- how sad is your shit that you're trying to drum up biz HERE......

Now chop-chop- sign in with your other 3 screen names and assure me that Shitwave is the greatest thing since sliced bread......

Winston Churchill's picture

Yes, truly amazing you can still type while fellating yourself.

silverer's picture

Shepwave is your Shepard, you shall not want.
They leadith you to the path of investment, for return's sake.
Surely profits and taxes will follow you all the days of your life, and you will be a fan forever. Amen.

Winston Churchill's picture

Just the leading edge of China's credit impulse drying up.

The "eye" is still way offshore,time to batten down.

Rick Cerone's picture

Once we get a Fed President who ISN'T a neo-Nazi, things will change.

silverer's picture

All I do is watch what goes into the Federal Register. Trump can put on his swastika armbands and march around all day, but if what he thinks and says that "anti Nazis" object to (whatever that is) does not end up in the Federal Register, it means nothing. That's how I judge it. On the other hand, if you like Nazis, you have to appreciate how Obama empowered Federal regulators to circumvent Congress completely. Thousands of regulations passed with NO input from the people of the US or Congress. Brilliant. Trump said for every new regulation, you have to take two off. That doesn't sound very Nazi-ish to me.

Rick Cerone's picture

I'm saying the Federal Reserve is a neo-Nazi institution.

Xena fobe's picture

It had nothing to do with Trump.  Read the artile.

But I am curious how you arrive at the conclusion Trump is a nazi if you care to explain. 

freedom1798's picture

They got the chinks out.  Now we need to get them out of the rest of country.  Ban all real estate purchases by foreigners retroactive fifty years.   America is for Americans, it is not for foreigners.

SantaClaws's picture

A slowing sales market for Manhattan office properties would seem to be less than great news to Jared Kushner, a part owner of 666 Fifth Ave.

Gab Timov's picture

So, we sent the chinese all our money and then they spent it here on real estate driving up the prices on everything.

gdpetti's picture

Yes, the same TRAP we set for the Japanese 'back in the day'... only now Xi, like Putin in Russia, seems intent to stop the blood loss before the patient dies like in Japan... Temptation it's called.... S.O.P. here in Purgatory.

qwertyFUBAR's picture

Here's how all other financial markets change strategy:

"Whoooosh! Blaam! Er-hee-er-hee-er-hee! Wogglw woggle squeak squeal vroooooom backalacka backalacka bing bing...oip....'

Here's how the Chinese financial market changes strategy:

'Click.'