Manhattan Office Bubble Fizzles Without Big Chinese Buyers

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.

Comments

Escrava Isaura Sun, 10/29/2017 - 13:25 Permalink

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.  
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Endgame Napoleon Truther Sun, 10/29/2017 - 14:11 Permalink

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.

In reply to by Truther

jcaz Escrava Isaura Sun, 10/29/2017 - 13:38 Permalink

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......

In reply to by Escrava Isaura

Escrava Isaura abit89 Sun, 10/29/2017 - 14:28 Permalink

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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.  

In reply to by abit89

Escrava Isaura silverer Sun, 10/29/2017 - 15:11 Permalink

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  
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In reply to by silverer

abit89 Sun, 10/29/2017 - 13:38 Permalink

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 abit89 Sun, 10/29/2017 - 13:44 Permalink

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......

In reply to by abit89

silverer Rick Cerone Sun, 10/29/2017 - 14:11 Permalink

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.

In reply to by Rick Cerone

freedom1798 Sun, 10/29/2017 - 14:29 Permalink

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.

qwertyFUBAR Sun, 10/29/2017 - 17:19 Permalink

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.'