Depending on who you ask, residential real estate in 2015 was either the apex of a continuous rise — or the start of a downward slide.
The headlines were devoted to some of the biggest deals in the city, such as the penthouses in Extell’s One57 tower and the $30 million condos scattered along Park Avenue.
However, with it came worries over the supposed thinning ranks of $10 million-and-above condo buyers.
There were also external worries from the strength of the US dollar, which experts say makes New York real estate less attractive to foreign buyers, and the Federal Reserve’s recent 25-basis point rate increase, which pushes up mortgage rates.
The outlook is similarly mixed for the next year.
We spoke to some of the city’s top real estate executives, and the prevailing tone is that of cautious optimism.
There was confidence over the strength of the New York City market, particularly based on the performance of the outer boroughs, matched by fears over the weakening appeal of the luxury real estate market. We’ll see who’s right over the next 12 months.
Dottie Herman, President & CEO,
“It will be a repeat of this year: healthy, strong (and with) sustainable growth.
“Because of all the wars and things that are happening all over the world, when things like that happen, people tend to find refuge in their home and then their neighborhood. And they?re more likely to travel inside the States than outside.
“I think that second homes are going to continue to rise because I think people are going to feel like they want their family around them.
“I kind of saw this after 9/11, when people would call me and say, ‘You know what, I have this home, can you get me another place. I want to build a home that my family can come too.? Many people want to have their kids and their grandkids visit them, so they tend to go to places where their kids would want to come to, so New York City, Vermont, Miami, things of that nature. It’s always been the American dream.
Ian Bruce Eichner, Founder & Chairman,
“I think you’re going to see more demand for products in the middle market, $1,800 to $2,500 per s/f, as
IAN BRUCE EICHNER
opposed to only super-luxury. And I think you’re going to see an adjustment of the product that’s coming
to the market to match that demand. I think you’re going to see a stable stream of purchases, but not a frantic rush like we saw in certain parts of 2015.
“I believe there?s a certain number of buyers that will stay in the (high-end) market. But I think in the New York area, every developer wanted to develop ultra-luxury. And so I think that there’s a bit of oversupply of product in that super-luxury market. There?s strong fundamental support in the New York market, but I think we?re overbuilt in super-luxury.?
President & CEO,
Miller Samuel, Inc.
“New development entering the market will likely match the volume we saw in 2015, so expect a more
polarized environment, with more developers negotiating to keep sales moving while a smaller subset will continue to sell without discounts. Existing inventory will continue to remain low as mortgage
lending conditions will largely remain unchanged (tight).
“I would expect the continued sales expansion of the suburbs as the emerging alternative to those challenged by the city’s shrinking affordability. Look for continued growth in Queens and a lot more rental development in the Bronx.?
Sherry Tobak, Senior Vice President,
“Due to the continued strength of the US economy, there will certainly be more and more foreign investors seeking a safe haven for their money.
“We are seeing a more diverse, cross generational and sophisticated population of buyers than we have in recent years, but these buyers now have more options than ever before.
“Whereas traditionally prices are driven by a shortage of supply, the tremendous influx of super luxury developments in New York is pushing prices to new levels causing some concern for 2016.
“However, I agree with the optimistic economists and predict a robust and very energetic market in 2016.”
Aleksandra Scepanovic, Founder & Managing Director, Ideal Properties Group
“In the residential market, I think the market is picking up steam. What I think is going to happen is that prices will definitely continue to increase. and we’re going to see the pace that we have seen over the last few years, especially the last two years. So we’re probably talking about a smaller rate, but still, we’re going to be seeing an increase in price.
“The only thing that I would exclude from this is the high-end [and] single-family townhouse market, because that market is so specific and there is such a shortage of supply. If it’s a really nice renovated townhouse that happens to be a single-family townhouse hits the market, it’s going to command a real high price. I’m thinking that’s where we’re going to be seeing a lot of aggressive brokers.
“I expect Brooklyn to continue to become steep. Again, not as steep as the last few years we have seen. But we would still be seeing high prices, lots of transactions.
“Williamsburg and Park Slope will continue to have a very high number of transactions happen compared to the other markets around them.
“In terms of the residential development, there is this really strong push, with people having already bought their homes in Brooklyn, for that to be complemented by commercial development. So I think we’re going to be seeing an increased demand for a lot of new offices, a lot of commercial spaces.?
Robert Nelson, President, Nelson Management Group
“I think that it’s going to be a little bit more tepid than it has been over the last 12 months.
“We’re already starting to see signs of that. These multi-million dollar apartment sales seem to not be faring so well, and rent seems to be slowing in terms of growth.
“If you look at some of the reports that have come out recently, rents are not moving as much as they were over the last 12 months. It seems that things are slowing down.
“ And interest rates that are going to go up, as far as that is concerned, certainly seems to suggest that we’re going to have a more tepid market.?
Larry Link, President, Level Group
“2016 is sure to be an exciting year for the residential real estate market. Of course rising interest rates are on the top of everyone’s mind right now and this will play a major factor in the upcoming year. Interest rates have been either flat or dropping for most of the last decade, so I expect an environment of increasing interest rates will begin to change the dynamics of residential transactions by limiting slightly what buyers can afford. This will lead to a psychological impact on the market as sellers begin to feel less confident about the relatively high asking prices which have been the norm for the last several years. The impact of this psychological shift will be most prominent for luxury properties where pricing has seemed to know no bounds.
Another trend in 2016 will be the continued rise of the “Wellness Building”. Traditional amenities like doormen, gyms, elevators and outdoor space will continue to be in demand, but buyers will also be expecting systems that contribute to their wellness in unique ways. These systems may include water and air purification systems, more robust soundproofing of walls and windows, and lighting systems within apartments that consider the impact of circadian rhythms. Advances in technology and materials also offer the promise of safer living environments. For example, expect certain buyer to demand their entire apartment to be constructed of materials with zero VOC’s with no off-gassing, which is possible now, or at least much closer to reality than it was previously.
Technology will continue to have an impact on residential real estate and brokerage companies in particular will have to keep up. Firms that continue to do things in the same way, offering the same model for marketing property to both their agents and their customers will fall by the wayside. Since so much property information is available directly to customers now, the search for a new home has become a “tag-team” effort; agents and buyers searching together for the right property and sharing information across multiple platforms and communication methods. This trend will continue and agents will naturally migrate to more forward thinking companies that offer more flexible ways of working and higher payouts for those efforts. “