Deals are on the rise in Manhattan, and new development is finally joining the swell.
The new development market picked up steam this fall, with contract activity accelerating at a quicker pace than resales, according to data from UrbanDigs, which includes conversion projects.
“I do sense a certain confidence in the New York market that I haven’t sensed in a while,” said Susan de França, president and CEO of Douglas Elliman’s new development marketing arm. She added that she expects contract activity to continue to remain high through the end of the year.
Sales in the sector started climbing in August, as mortgage rates began to fall ahead of the Federal Reserve’s long-awaited rate cuts — a move expected to bring relief to residential markets.
The momentum continued through September, with signed contracts rising 50 percent annually compared to just 16 percent for resales. By October, new development sales had increased 74 percent year-over-year, while resales grew 19 percent. Last month, the resale market caught up, though new developments still logged gains, with inked deals up 33 percent.
Small but significant
New development’s upswing comes after a disappointing performance at the start of the year, when sales lagged significantly behind resales and missed its marks compared to the same months in previous years, according to UrbanDigs’ co-founder John Walkup.
In the first quarter, “resale was holding its own compared to last year,” Walkup said, with contract activity increasing on an annual basis in three of the first six months of the year. At the same time, new development sales struggled to keep pace, with May sales dropping 53 percent year-over-year compared to just a 3 percent dip for resales.
But since late summer, there’s been “a strong pull of demand toward new development,” Walkup said. “It’s that bright shiny object,” he added, describing the new development offerings on the market as “better [products] on paper and in most people’s imaginations.”
Walkup attributes the acceleration, in part, to the relative size of Manhattan’s new development market. Most home sales in the borough fall under the resale category, and fewer pending deals overall means changes in the numbers are likely to appear more drastic compared to a larger pool.
But he, along with executives heading new development marketing firms, point to other drivers of demand for the segment, including changes to the macroeconomic environment, price reductions and a shrinking new development pipeline.
“That combination of things was powerful enough to bring a whole lot of buyers off the sidelines,” said Kelly Mack, president of Corcoran Sunshine. “The fall market completely re-energized to the surprise of many who were expecting a quiet few months.” (Mack was referring to the industry’s conventional wisdom that sales slow ahead of major elections, though economists say the data doesn’t necessarily reflect the sentiment.)
More buyers entered the market after mortgage rates started easing earlier this year, which elevated sales across the board, Mack said. While most new developments cater to luxury buyers, who are typically less reliant on mortgages and rate fluctuations, they’re still influenced by the broader economic conditions impacting rates.
Developers with “lingering inventory” also dropped their asking prices this fall, Mack said. Roughly 80 percent of new development deals over the last two months were at buildings that had reduced prices, according to data from Corcoran Sunshine. In November, half of the units that entered contract had a price reduction at some point.
Fresh, hot deliveries
But Mack pegs a slate of new buildings coming to market as the primary catalyst for the new development boost. In October, roughly one-third of signed contracts were at buildings that launched sales this year, and in November, it was 44 percent.
Rabina’s 520 Fifth Avenue, which launched sales in April headed by brokers from Mack’s firm, led the charge on signed contracts last month, logging seven inked deals, according to Marketproof. Other buildings like Aurora Capital Associates’ 140 Jane Street and the Reuben Brothers’ Surrey Residences, which also launched sales earlier this year, were regular fixtures in weekly contract reports.
A dwindling new development pipeline is also creating a sense of urgency to buy the new product coming to market, Mack said. About 1370 new units were slated to come to market this year, which is 35 percent below the decade average, according to Corcoran Sunshine data. Over the next three years, that number is expected to drop to an average of 1,100 units each year.
Buyers aware of the upcoming drought are feeling the pressure to buy now while options are still on the table.
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“Many people may say there’s really not all that much to buy,” Mack said, echoing other brokers who told The Real Deal about a shortage of quality, well-priced inventory. “There’s just not a lot of new product coming to market, which is driving a real flight to quality.”