New York is undoubtedly one of the richest residential markets in the USA, commanding the highest prices per square foot of any US state. It is the premier world city of the Americas: a hub for global business and finance, an international cultural capital, and it regularly exchanges places with London at the top of global city rankings.

Its global pull means that New York attracts significant numbers of wealthy overseas buyers and the city has seen increasing investor interest over the last year as it looks particularly good value next to other global centres. Before 2007, it would regularly occupy a top three position with some of the most expensive real estate. It is now ranked seventh for prime and ultra-prime property. And, while the price of world billionaire properties has doubled since 2005 in the top 10 world cities, New York has seen total growth of only 47% in the same time period. Consequently, Asian wealth and other “new world” city inhabitants are increasingly seeing the “Big Apple” as a value play – especially if they also see a potential for US economic recovery.

Foreign exchange

It is hardly surprising that more overseas buyers have been seen over the last 18 months in the top tiers of the New York market. These include Chinese, Russians, and Eastern Europeans. Unlike cities in most of the rest of the globe, wealthy Latin Americans are also a growing force in New York. It has been one of the first cities to see these buyers in volume outside of the more established haunts such as Miami. Argentineans, Mexicans and Peruvians have all been present at the higher price points.

The buying habits of the Chinese in New York echo those in Europe, purchasing property for their student children at the lower tiers of the prime markets ($1 to $2 million), with investment in mind. Many of these buyers are “testing the water” and intend to make bigger ticket purchases in future. They are, however, not entirely absent from the upper tiers of the prime markets.

Record breaking

New York residential property has seen a number of records broken by overseas buyers, with values exceeding $10,000 per square foot. The $88 million record set at Central Park West was a sale to a Russian buyer. International buyers are seeking trophy assets, taking advantage of safe-haven credentials and a weak US dollar. New York has been the greatest beneficiary of this buying power to date.

New York’s prime markets are concentrated in Manhattan, the best known of which are the Upper East Side and Upper West Sides, bordering Central Park. Both are well established, the Upper East Side known for its large, classic New York apartments, attracting “old money”, while the Upper West Side is a more family friendly, accessible alternative. Like many world cities though, the areas considered “prime” in New York city have expanded over the years and offer a much greater variety of lifestyles than might have been the case 30 years ago. Even parts of Brooklyn are now considered prime, as are downtown neighbourhoods such as Tribeca.

New York’s prime residential market is dominated by cooperatives and condominiums. The condominium market has outperformed since the downturn and during the latest recovery. This is because it is, effectively, the only type of apartment building that is freely available to foreign buyers and is in relatively short supply compared to co-ops. This out-performance of condos in New York is further evidence that overseas buyers are driving price recovery in “old world” global cities. It is these overseas buyers who have helped plug the gap left by the former, Wall Street bonus reliant, domestic purchasers in the prime markets.

Set for capital growth

Like many “old world” cities, New York is a supply constrained market, and the new condominium inventory — of which there had been a shortage in the immediate aftermath of the market downturn – has traded well recently. New York is a rental city, and rents continue to rise. Some 69% of properties are renter-occupied. As interest rates fall to record lows, occupiers are increasingly looking to the sales market as a more affordable alternative. Consequently, prime yields are high, at 6.6%. This means that New York is also uniquely well-placed against other, generally low-yielding, global cities to attract investors looking for income as well as those looking for capital growth and/or a safe haven store of wealth.

We expect prime New York capital values to continue growing in excess of their former peaks, so long as the US economy and stock markets continue to recover, and we have pencilled in around 25% over the next three years. The highest growth is likely to be seen in condominiums and houses rather than in co-ops.

Taken from
Candy Global Prime Sector Report