Gotham Commercial Real Estate MonitorBy William H. Jennings | January 26, 2016 | Download PDF
The Impact of Rising Interest Rates on Commercial and Residential Property in New York City.
Winter 2015 - 2016
CURRENT MARKET ENVIRONMENT
Real estate professionals surveyed are split when it comes to the current status of commercial and residential property values in New York City. While 9% express uncertainty, the balance is divided as to whether or not New York City property values will continue to rise. Among those who think property values have peaked, 17% expect commercial property values will decline while 31% think values “will hold at current levels.” Similar attitudes are held toward the status of residential property values.
- 43% think commercial property values will continue to rise, and 44% say the same of New York’s condo and co-op market.
If a bubble were to burst in New York City’s steadily rising real estate values, only 19% think it will be a “hard landing” in commercial values, while slightly more, 22%, think it could be steep for residential values.
Three-in-10 surveyed think if values start to fall it will be a “soft” decline in commercial and residential values.
Interestingly, only 8% and 9% (for commercial and residential, respectively) would venture to say that there is, in fact, “no bubble” in New York City property values.
THE IMPACT OF RISING INTEREST RATES
From 52% to 53% think an interest rate increase will either “definitely” or “probably” slow the rate of commercial and residential development projects.
- 40% don’t believe interest rate hikes will impede new development projects in NYC.
In addition, most professionals surveyed think the increase in interest rates can lead to rent decreases on highly-leveraged commercial properties:
- 55% believe the interest rate hike could prompt rents to follow any decrease in property values, though 30% say investors will be able to “wait it out.”
- Optimistically, 29% think the interest rate increase will have “no effect” other than reduced cash flow for refinancing investors.
A slight majority of the real estate professionals surveyed, 51%, think a one or two-point rise in interest rates will result in a decline in commercial real estate values in the next year, but of them 45% think values will decline “moderately” and only 6% think values will decline “significantly.”
- Similar attitudes are expressed about the potential decline in residential property values in New York City should interest rates rise--38% think values will decline moderately, and still only 6% think they’ll decline “significantly.” Some counter that the rise in interest rates will increase property values – with 21% indicating commercial values will increase, and 17% saying residential values will increase.
Most real estate professionals surveyed (63%) think the rise in interest rates will not slow the pace of foreign investment in residential properties in New York City, while 30% still think a slower pace of foreign investment is a possibility.
REAL ESTATE AS A PROFESSION
On a scale of 0-10 (from extremely negative to extremely positive) New York City’s real estate professionals surveyed are more likely to give high ratings to their job compensation (mean of 7.9) and their experience of the real estate business as “an enjoyable profession” (mean of 8.0) than they are to a feeling of job security (mean of 6.6).
One respondent actually wrote on his survey that he had “just been fired,” next to a low rating on his feeling of job security.
The results reported in this summary are based on completed self-administered questionnaires using two data collection methods—online and in-person, intercept interviews.
- Overall, 201 individuals responded to the survey—64 online following a series of email invitations and 135 in person at a convention of New York City real estate professionals. A total of 172 individuals responded to all opinion questions, while 29 skipped one or more questions.
- Interview dates are from November 11 to December 23, 2015.
- Marks Paneth staff supervised the convention site intercept interviews and email deployments for online data collection. Michaels Opinion Research, Inc. hosted the online data collection site and tabulated all questionnaires.
To participate in future surveys and receive results please email us at email@example.com.
About William H. Jennings
William H. Jennings, CPA, is a Partner in the Real Estate Group at Marks Paneth LLP. Mr. Jennings served on the Marks Paneth Executive Committee, which sets policy and strategy for the firm, from its inception until 2019. He is Past Partner-in-Charge of the Real Estate Group and Past Partner-in-Charge of the firm’s Boca Raton, Florida office. With more than 35 years of experience in public accounting and a keen focus on the real estate... READ MORE +