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Gotham Commercial Real Estate Monitor
The Impact of Rising Interest Rates on Commercial and Residential Property
in New York City
Winter 2015 - 2016
Introduction
Gotham Commercial Real Estate Monitor
Winter 2015 - 20162 | markspaneth.com
Our Gotham Commercial Real Estate Monitor takes the pulse of New York’s commercial real estate property owners and managers, brokers, agents, attorneys, accountants and other professionals in this sector three times a year. Findings from the Winter 2015-2016 edition of the survey provide interesting insights on the potential impact of rising interest rates and other market-related topics.
Current Market Environment
Gotham Commercial Real Estate Monitor
Winter 2015 - 20163 | markspaneth.com
Real estate professionals surveyed are split when it comes to the current status of commercial and residential property values in New York City. While 9% express uncertainty, the balance is divided as to whether or not New York City property values will continue to rise.
Current Market Environment
Among those who think property values have peaked, 17% expect commercial property values will decline while 31% think values “will hold at current levels.” Similar attitudes are held toward the status of residential property values.
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What do you think is the current
market status of commercial
property values in New York City?
9%
43%
17%
31%
Not sure
Values will continue to rise
Values have peaked andwill decline
Values have peaked andwill hold at this level
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
Current Market Environment
43% think commercial property values will continue to rise, and 44% say the same of New York’s condo and co-op market.
43%SAY NEW YORK CITY COMMERCIAL
PROPERTY VALUES WILL
CONTINUE TO RISE
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Winter 2015 - 2016
Current Market Environment
If a bubble were to burst in New York City’s steadily rising real estate values, only 19% think it will be a “hard landing” in commercial values…
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If there is a bubble in New York City commercial real estate values that
eventually bursts, will it be asoft or hard landing?
Soft landing 31%
Hard landing 19%
Somewhere in between 37%
There is no bubble 8%
Not sure 5%
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
Current Market Environment
… while slightly more, 22%, think it could be steep for residential values.
Three-in-10 surveyed think if values start to fall it will be a “soft” decline in commercial and residential values.
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If there is a bubble in New York City condo and co-op real estate values
that eventually bursts, will it be a soft or hard landing?
Soft landing 29%
Hard landing 22%
Somewhere in between 34%
There is no bubble 9%
Not sure 6%
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
Current Market Environment
Interestingly, only 8% and 9% (for commercial and residential, respectively) would venture to say that there is, in fact, “no bubble” in New York City property values.
8 | markspaneth.com Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
The Impact of Rising Interest Rates
53% think an interest rate increase will either “definitely” or “probably” slow the rate of commercial and residential development projects.
40% don’t believe interest rate hikes will impede new development projects in NYC.
53%SAY A RISE IN INTEREST RATES
WILL SLOW COMMERCIAL
DEVELOPMENT IN NYC
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40%DON’T BELIEVE INTEREST RATE
HIKES WILL IMPEDE NEW
DEVELOPMENT PROJECTS
IN NYC
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
The Impact of Rising Interest Rates
Most professionals surveyed think the increase in interest rates can lead to rent decreases on highly-leveraged commercial properties:
• 55% believe the interest rate hike could prompt rents to follow any decrease in property values, though 30% say investors will be able to “wait it out.”
• 29% think the interest rate increase will have “no effect” other than reduced cash flow for refinancing investors.
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Winter 2015 - 2016
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How will investors with highly-leveraged
commercial properties in New York City be affected by an increase in interest rates?
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
16%
29%
30%
12%
13%
Not sure
An interest rate increase will have no effect, but cashflow will be reduced if investors refinance
Rents will follow a decrease in property values andinvestors will wait it out
Rents will follow a decrease in property values andinvestors will default
Rents will follow a decrease in property values andinvestors will be forced to sell
The Impact of Rising Interest Rates
A slight majority of the real estate professionals surveyed, 51%, think a one or two-point rise in interest rates will result in a decline in commercial real estate values in the next year. But of them, 45% think values will decline “moderately” and only 6% think values will decline “significantly.”
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51%SAY A TWO-POINT RISE IN
INTEREST RATES WILLRESULT IN A DECLINE IN
COMMERCIAL
REAL ESTATE
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
The Impact of Rising Interest Rates
Similar attitudes are expressed about the potential decline in residential property values in New York City should interest rates rise – 38% think values will decline moderately, and only 6% think they’ll decline “significantly.”
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7%
3%
14%
32%
38%
6%
Don't know
Values will increase significantly
Values will increase moderately
Values will stay the same
Values will decline moderately
Values will decline significantly
If interest rates rise by one or two percentage-points, how will it impact
condo and co-op values in New York City in the following year?
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
The Impact of Rising Interest Rates
Some counter that the rise in interest rates will increase property values – with 21% indicating commercial values will increase, and 17% saying residential values will increase.
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17%SAY THE RISE IN INTEREST
RATES WILL INCREASE
RESIDENTIAL VALUES
21%SAY THE RISE IN INTEREST
RATES WILL INCREASE
COMMERCIAL VALUES
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
The Impact of Rising Interest Rates
Most real estate professionals surveyed (63%) think the rise in interest rates will not slow the pace of foreign investment in residential properties in New York City, while 30% still think a slower pace of foreign investment is a possibility.
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63%SAY THE RISE IN INTEREST RATES WILL
NOT SLOW THE PLACE OF FOREIGN INVESTMENT IN NYC
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
Real Estate as a Profession
16 | markspaneth.com Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
On a scale of 0-10 (from extremely negative to extremely positive) New York City’s real estate professionals surveyed are more likely to give high ratings to their job compensation (mean of 7.9) and their experience of the real estate business as “an enjoyable profession” (mean of 8.0) than they are to a feeling of job security (mean of 6.6).
One respondent actually wrote on his survey that he had “just been fired,” next to a low rating on his feeling of job security.
Methodology
The results reported in this summary are based on completed self-administered questionnaires using two data collection methods — online and in-person intercept interviews.
• Overall, 201 individuals responded to the survey — 64 online following a series of email invitations and 135 in person at a convention of New York City real estate professionals. A total of 172 individuals responded to all opinion questions, while 29 skipped one or more questions.
• Interview dates are from November 11 to December 23, 2015.
• Marks Paneth staff supervised the convention site intercept interviews and email deployments for online data collection. Michaels Opinion Research, Inc. hosted the online data collection site and tabulated all questionnaires.
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Winter 2015 - 2016
For More Information
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If you have any questions, please contact William Jennings, Partner-in-Charge of the Real Estate Group, or any of the other partners in the Marks Paneth Real Estate Group.
Click here to read highlights of the Fall 2015 Gotham Commercial Real Estate Monitor.
To participate in future surveys and receive results, please email us at [email protected].
Gotham Commercial Real Estate Monitor
Winter 2015 - 2016
