REBNY Index: Tumultuous Presidential Campaign, Lack of Inventory Tempers Confidence of NYC Real Estate Brokers in 1Q 2016

-- Uncertain political and global economic outlook shades expectations of commercial brokers; inventory and interest rates impact residential brokers’ bullishness in 1Q 2016 --

New York City real estate brokers’ confidence softened in the first quarter of 2016 with political, economic and state of the market concerns presiding over the strength of the City’s real estate activity, according to the Real Estate Board of New York’s (REBNY) latest Broker Confidence Index.

The Real Estate Broker Confidence Index dipped more than a half point to 7.23 in the first quarter of 2016 from 7.87 in the fourth quarter of 2015. In the outlook for the market six months from now, the Real Estate Broker Confidence Index similarly dipped 0.84 points to 6.73 from 7.57 last quarter.

Both indexes for the current and future market have experienced a slow and steady decline in broker confidence since the fourth quarter of 2014 when the current index was 9.22 and the index for the market six months from now was 9.23, the highest it’s been since the inception of this survey in 2013. Nevertheless, the residential and commercial brokers’ overall current and future levels of confidence have remained positive.

“The ongoing transition in our nation’s leadership has contributed to apprehension surrounding decision-making and uncertainty for the future of the real estate market and economy,” said John H. Banks, III, REBNY President. “While this builds on concerns about future interest rates and inventory, our brokers maintain a positive outlook overall with healthy market demand and the growth of New York City jobs.”

The Commercial Broker Confidence Index in the first quarter of 2016 drove the decline in the overall Real Estate Broker Confidence Index. It declined to 6.36 from 7.88 last quarter, recording the first time this index has dipped below 7 since REBNY’s inaugural survey in 2013. Similarly, the confidence index for commercial brokers’ expectations for the market six months from now was 5.55, down 1.69 from 7.24 last quarter, the greatest drop in future confidence since the inception of this survey.

Uncertainty over the United States presidential election, anticipation of future interest rate increases, and concerns about the global economy, influx of new office space and rising asking rents were among the commercial brokers’ key concerns.

Among other comments, one commercial broker offered a positive outlook noting that they expect job growth to continue in New York City, which will result in stronger leasing velocity between the second and fourth quarters of 2016.

In comparison, another broker noted that too much new space is coming available at rents that are too high and that too many tenants’ space needs are shrinking. A second broker similarly stated, “Added supply is starting to take its toll.”

Commenting on the broader New York City real estate market, another commercial broker said, “Until 421A or another like program is adopted, residential development will slow to a crawl.”

Complementing the fourth quarter of 2015 index, and in contrast to the decline in the Commercial Broker Confidence Index, REBNY’s residential brokers reported slightly elevated confidence levels in the first quarter of 2016.

The Residential Broker Confidence Index increased to 8.10 from 7.85 last quarter, while the index for the market six months from now rose to 7.92 from 7.90 last quarter.

These upticks in the residential brokers’ confidence were met with concerns over rising interest rates and the lack of inventory. Brokers active in the rental market specifically expressed concerns about the number of new units scheduled to come on to the market in Brooklyn in the next two years, which is expected to slow price growth.

Despite differing assessments of the markets throughout the boroughs, along with the uncertainty of interest and mortgage rates and the volatility of the stock market, many residential brokers stated that the New York City real estate market remains strong.

“There is a plethora of buyers (with financing and cash) looking to buy. There does not seem to be a slowdown in demand,” said one residential broker.

“Another correction in the stock market will slow the Manhattan market somewhat, and speed the change from a Seller's market to a Buyer's market,” explained another.

With regards to inventory, another residential broker stated that new development units coming on to the market are forcing owners to bring their apartments up to new standards, or take a hit on the price.

REBNY’s Broker Confidence Index is a collection of responses from an online survey given to REBNY’s residential and commercial brokerage division members.

Download a full copy of the 1Q 2016 Broker Confidence Index.