Manhattan, New York has lost its crown as the top place for foreign investors to buy U.S. real estate, with upscale office buildings falling out of favor in the midst of the pandemic and much of the money shifting to industrial real estate.
Overseas investment in Manhattan real estate plunged 79 percent to about $2 billion in the 12 months ended March this year, according to Real Capital Analytics, Bloomberg reported. That’s as cross-border investors poured $10.6 billion into U.S. warehouse and logistics properties — a 39 percent increase — and outpaced international investment in office space for the first time.
“Manhattan will live or die on the health of the office market,” Jim Costello, a senior vice president at the firm, said in an interview with Bloomberg.
Seattle climbed to No. 1 with $2.5 billion in foreign investment, down 11 percent from the previous 12-month period. The Northwest city, home to technology giants Amazon.com Inc. and Microsoft Corp. continues to attract money from Canada, the largest source of foreign funding for U.S. real estate.
In 2009, Manhattan briefly lost its title as a top destination for foreign investors in the U.S., replaced by Washington, D.C., when real estate transaction volumes collapsed globally, Costello said. The past 12 months have been more mixed, with purchases of office, hotel, retail and apartment properties falling sharply while spending on senior housing and industrial real estate has risen.
In addition, the Wall Street Journal reports that more than 1 in 10 rental apartments in Manhattan are currently vacant, raising the prospect of discounted rents and other tenant deals that will continue at least through this summer.
Manhattan’s apartment vacancy rate rose to 11.6 percent in April, up from 2.42 percent a year ago, according to a report by appraisal firm Miller Samuel and brokerage Douglas Elliman. Median rents declined on both a monthly and annual basis.
The data shows that landlords are struggling to keep their apartment buildings full. Many landlords have had to cut prices and offer incentives, such as eliminating agent fees or offering multiple months of rent-free periods, to get apartment units rented out.
Manhattan’s plummeting rents and highest vacancy rates in years reflect the exodus of tenants from Manhattan during the worst of the pandemic. The number of new tenants arriving is far less than the number of tenants leaving.
But brokers say the expected return of office workers and college students to Manhattan in late summer will cut into the high vacancy rate and eventually prop up rent prices.
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