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The dollar volume of Brooklyn’s real estate investment sales plummeted by nearly half in the first quarter of 2023 compared to last year, according to a new report from brokerage TerraCRG.
Brooklyn saw sales drop 49 percent compared to the same time last year — from $2.07 billion to $1.05 billion — and decline 47 percent quarter-over-quarter, as higher interest rates, inflation and a slowdown in lending cooled investor appetite for the borough’s buildings.
“The effects of rising borrowing costs are finally being manifested in the market,” Ofer Cohen, founder and CEO of TerraCRG, said. “A big chunk of that drop stemmed from a drop in multifamily transactions.”
And it was a big chunk indeed, with multifamily and mixed-use property sales sinking 43 percent — from $859.07 million in the first quarter of 2022 to $490 million in the first quarter of 2023 — and 73 percent quarter-over-quarter. The number of multifamily transactions fell too, from 244 to 142 year-over-year.
Inflation has made multifamily buildings more expensive to maintain, slowing sales even as net effective monthly rents in Brooklyn reached an average of $4,175 in March, their second-highest level on record, said Cohen.
Even with the Federal Reserve indicating it would halt interest rate hikes — after increasing them to between 5 and 5.25 percent on Wednesday — that won’t necessarily get deals flowing, Cohen said.
“A pause is a pause. A pause is not a drop,” Cohen said. “We could be in a year of pausing before anything happens, which means that the volume is going to continue to be depressed.”
It’s not just multifamily sales slowing. Sales of industrial properties also dropped from $234.31 million to $80.98 million year-over-year, a 65 percent drop.
While demand for industrial properties remains strong, a slowdown in industrial leasing has helped shrink sales volume, said Dan Marks, a partner at TerraCRG.
“Supply remains extremely limited. This, coupled with higher cost of borrowing and slightly slower leasing velocity, have resulted in lower sales volume,” Marks said. “If supply is delivered to market, we expect more sales in the coming quarters.”
Sales for retail properties and development sites also slipped in the first quarter, though not as significantly as in the multifamily or industrial sectors. Investment sales of retail buildings shrank from $185.68 million in the first quarter of 2022 to $107.97 million in the first quarter of 2023, while development site sales dropped from $318.96 million to $293.9 million during the same period.
Meanwhile, Brooklyn office sales had the only quarter-over-quarter increase out of the sectors TerraCRG tracked — from $30.13 million in the fourth quarter of 2022 to $50.85 million in the first quarter — but it still saw a massive 85 percent year-over-year drop compared to the $343 million in deals that closed in the first quarter of 2022.
That quarterly uptick was likely because so few office properties in the borough changed in the borough, with only eight sold in the fourth quarter of 2022 and 11 in the first quarter, Cohen said.
Celia Young can be reached at cyoung@commercialobserver.com.
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