REBNY Index: Rental, Office Leasing Market Conditions Weigh on NYC Real Estate Broker Confidence in 1Q17

Overall indices dip while residential broker confidence rises for the first time in a year

Residential rental and office leasing market conditions raised concern among New York City real estate brokers in the first quarter of 2017 placing pressure on the Real Estate Board of New York’s (REBNY) Broker Confidence Index.

Following a boost posted in the fourth quarter of 2016—the first rise in two years—the Real Estate Broker Confidence Index, which measures overall broker outlook in both the present situation and future real estate market, declined by 0.13 to 5.87 in the first quarter of 2017. This shift was driven by brokers’ confidence in the future real estate market six months from now, which, as measured by the Real Estate Broker Future Confidence Index, pivoted downwards declining 0.27 to 5.7 quarter-over-quarter.

“Our residential and commercial brokers stepped into the first quarter of 2017 with greater confidence, but are proceeding with cautious optimism,” said REBNY President John Banks. “Overall real estate activity in New York City continues at a healthy pace as the market adjusts to the anticipated impact of new inventory.”

The Commercial Broker Confidence Index was 5.28, a decrease of 0.57 from the fourth quarter of 2016. Although confidence in commissions and overall market fundamentals remained high, concerns about the market six months from now placed weight on the index. The Commercial Broker Future Confidence Index decreased 0.46 quarter-over-quarter to 4.93.

“Interest rate uncertainty, instability in brick and mortar retail is a problem,” said one commercial broker.

Commercial brokers also expressed concerns about the future leasing and financing landscape with some office leasing brokers voicing that there may be too much new inventory. “Inventory in new neighborhoods (Brooklyn, Hudson Yards) is causing a concern among some brokers that the overall market may be flattening out,” said one commercial broker.

Meanwhile, another shared, “The West Side Rail Yards and the successful closing of deals will create new and lower cost alternatives, with landlords investing in assets to retain and attract new tenants.”

High confidence in future commissions and a positive outlook on lending buoyed the Residential Broker Confidence Index in the first quarter of 2017. The index rose to 6.46, up 0.32 since the fourth quarter of 2016. This was the first recorded increase in the Residential Broker Confidence Index since the first quarter of 2016.

One residential broker commented that inventory is selling at a brisk pace, while another shared that buyers are now acting in the lower-priced markets under $3 million.

“Consumer confidence is high and should remain so for the next 6 to 12 months. The economy continues to grow along with NYC jobs. All should drive the sales market,” one residential broker stated.

Despite the confidence boost in the present situation, residential brokers’ concern about the rental market six months from now weighed on the Residential Broker Future Confidence Index, which decreased 0.08 to 6.46 in the first quarter of 2017.

One residential broker commented that rents may be too high given the inventory in the current market, while another indicated that sellers’ expectations are too high.

“New rental buildings, combined with a wider choice of neighborhoods, have lowered rental prices,” shared one residential broker. “Interest rates rising will show a decline in sales prices.”

Another stated, “Higher interest rates may make financing more costly, but if banking deregulation occurs financing will get easier.”

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