Cannabis sellers opened up shop. Mortgage rates climbed. The rental market went crazy. A unicorn went into survival mode. Some companies got real about their office footprints.
Those are just a few real estate-related highlights of 2022. They are also among the top stories to watch in the year ahead.
Since the onset of the pandemic, the future of the office market has been a big question mark. Early on, industry professionals insisted that the market would roar back once Covid subsided. This viewpoint was bolstered by some tech companies that inked leases for outrageously large office spaces and doubled down on plans to develop new office buildings.
But in 2022, facing ornery investors and the threat of a recession, tech companies cut spending, laid off employees and shed office space. Office landlords remained optimistic, but with an asterisk, which clarified that old office buildings were more or less doomed while flashy new ones remained in demand.
In 2023, elected officials are expected to push for more office-to-residential conversions, and the market for ground-up development is expected to remain bleak. Over the next few years, we will see if demand for high-end office will be enough to justify the volume of new development in the pipeline.
Vornado Realty Trust’s plans for office towers surrounding Penn Station — as well as the state’s plans for the station’s expansion and renovation — will almost certainly be part of that story. Vornado CEO Steve Roth recently cast doubt on the viability of moving forward with the project now, though he said he remains committed to it. I can see the office-to-housing ratio of the Penn project shifting further in favor of residential.
Meanwhile, rising interest rates wreaked havoc on the residential market. Mortgage companies and real estate brokerages laid off a ton of workers. Would-be home buyers flooded the rental market, further driving up demand in a market that already had limited supply. In May, the median rent in Manhattan reached $4,000 for the first time. It continued to rise before stabilizing in the fall. And by stabilizing, I mean it continued to hover around that very-high figure.
The housing market appears to have a rough road ahead. Redfin recently predicted that the housing market in 2023 will be the slowest in 12 years. The firm expects 16 percent fewer sales of existing homes than in 2022, and for the median home price in the U.S. to drop 4 percent. The firm also projects that the average mortgage rate in 2023 will be 6.1 percent.
It was also a tough year for iBuying. Zillow was the first to abandon ship in late 2021, and since then, Redfin has also shut down its iBuying business, while Offerpad and Opendoor struggle to survive.
Speaking of survival, Compass, after reporting $101 million in losses during the second quarter, announced that it was cutting costs by $320 million and ending its agent equity program. The company is now laser-focused on profitability.
At the start of 2022, Gov. Kathy Hochul announced a series of housing and real estate-related priorities, but nearly all of them quickly fizzled out. The fact that it was an election year helps explain things like the death of a proposal to force localities to legalize accessory dwelling units, which critics turned into a debate over local control of zoning. Long Island Republicans framed the issue as an end to single-family homes.
Hochul is expected to revive some version of this measure along with other failed proposals, including one that would lift the cap on the city’s residential floor area ratio.
The property tax break 421a expired in June, after the governor’s replacement program, 485w, failed to go anywhere. At this point, it is unclear if this issue will be resolved in the year ahead. Some industry folks have told me they are not holding their breath.
There were also some wild political moments in 2022 that — of course! — had a real estate angle. Lieutenant Gov. Brian Benjamin was indicted on bribery and corruption charges, stemming from his relationship with little-known developer Gerald Migdol. Some of the charges have since been dismissed.
Eric Ulrich resigned as the head of the Department of Buildings in November after news surfaced that he was questioned by the Manhattan district attorney’s office as part of a gambling probe. It can take months to find a permanent buildings commissioner because the job is demanding, thankless and not especially well paid. For now, Kazimir Vilenchik is holding down the fort as acting commissioner.
And then of course, there is the newly-elected member of Congress who…pretended to be a landlord?
And closing out the year, the first legal cannabis store opened at Manocherian Brothers’ 750 Broadway in Noho on Thursday, though illegal retailers popped up long before that. This will surely be a retail space to watch in the year ahead.
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