High interest rates dealt a big blow to Brooklyn investment sales last year after a record-breaking 2022.
Investment sales in the borough totaled $5.1 billion in 2023, a 46 percent drop from the previous year’s $9.5 billion, according to a report by Ariel Property Advisors. Transactions were down 30 percent.
“The good news is that the market fundamentals are strong. Rents are up and we have a perpetual shortage of housing, so occupancy is not an issue,” Ariel’s Sean Kelly said. “The biggest challenge was the interest rate hike that happened so quickly. It was inevitable but it was just a big shock to the system.”
Deals for multifamily properties saw the biggest drop, trading 56 percent lower in dollar volume. It was the lowest total in a decade, besides the first pandemic year, 2020. There were only 22 multifamily sales above $10 million, down from 68 in 2022.
Kelly said he did not foresee a turnaround in the multifamily sector without a replacement for 421a.
“The biggest thing that we need is a tax abatement, and that’s citywide, not just for Brooklyn,” Kelly said. “Renters are having a hard time as it is and rents are just going to continue to go up if we don’t provide more housing.”
One bright spot was in the commercial sector, which saw a 60 percent increase in dollar volume and had the second-best year ever. That’s largely from two big hotel purchases, in downtown Brooklyn and Williamsburg.
The industrial sector did not fare as well. There was a 47 percent drop in dollar volume from 2022, when two Amazon warehouses sold for a combined $561 million. Last year’s $248 million sale of a Sunset Park warehouse to FedEx was the second-largest transaction ever for the borough.
Development also dropped by 22 percent in dollar volume year-over-year. It was the fourth year in a row that Brooklyn had fewer than 200 development deals.
It was a bad year for investment sales citywide. No sale cracked the $1 billion mark, and the year’s top 10 biggest deals totaled $4.83 billion, down from $7.63 billion the previous year.