Certainly, some of the key characteristics that puts New York on the list as a perennial favorite for institutions include the size of the economy and liquidity of the market. Aside from its position as a gateway market, there also is a strong growth story in the local economy. Yet both domestic and foreign pension funds alike are finding it more difficult to find opportunities in the still highly competitive market where many assets are held by long-term owners. The property turnover rate has dropped to 2.80% for commercial properties as compared to 3.94% in 2015, according to a recent Globe Street article.
That competition also is prompting pension funds to consider investment in new development as a means to place capital and increase yield. For example, SL Green Realty recently sold a 27.6% stake in its One Vanderbilt development to the National Pension Service of Korea in a deal valued at about $525 million. One Vanderbilt is a 1.7-million-square-foot office complex under construction near Grand Central Station that is expected to be completed in 2020.
That deal also is a sign of the strong investor demand for New York City assets that is coming from foreign pension funds and other foreign investment groups. According to the 2017 Association of Foreign Investors in Real Estate (AFIRE) survey, New York City once again ranks number one on the list of top five most desirable U.S. investment markets, followed by Los Angeles, Boston, Seattle and San Francisco.
Although some thought that the over-heated pricing along with higher interest rates might have a bit of a cooling effect on the New York City investment market, it is likely that those foreign investors will play a key role in keeping pressure on cap rates and fueling sales activity again this year.