Demand for Manhattan commercial and multifamily real estate properties soared to an all-time high in 2015.  As the destination of some of the borough’s most prominent transactions, Midtown East held a leading role in what was a remarkable year for Manhattan commercial real estate. With 2015 numbers still coming in, we are expecting nearly $41.9 billion to be spent in Manhattan. From a geography perspective, Midtown East - which spans 14^th St. to 59^th St., 6^th Ave. to the East River – accounted for the lion’s share of the aggregate dollars expended. Still to be finalized statistics reveal that the region, which encompasses the Flatiron, Gramercy, Kips Bay, Midtown East, Murray Hill, Sutton Place and Turtle Bay neighborhoods, is currently leading the borough in 2015 with 128 transactions, consisting of 185 properties totaling $21.855 billion in gross consideration. These numbers represent an enormous 224% increase from the prior year. The fact that Midtown East’s dollar volume was roughly one third of 2015’s year to date total, despite nearly the same number of transactions taking place, is a testament to the area’s strong pricing and its ability to draw significant capital. This attraction can be explained by the five key factors outlined below. Manhattan’s Rising Office Rents Investors are increasingly looking to grow a stronger presence in Midtown East commercial properties for a number of economic and speculative reasons. On the economic front, many believe that office rents will continue to grow as the regional economy grows. Others see opportunity for the midtown sector to thrive versus rising competition from other up and coming areas, such as Hudson Yards. Investors think office rents in Midtown East still have room to grow, especially considering the area’s vast transportation network that keeps commuter times low. Major 2015 transactions are emblematic of these trends. One such deal was the Helmsley Building at 230 Park Ave., a 34-story, 1.4 million s/f office building just north of Grand Central, for $1.207 billion. The buyer, a partnership between the Blackstone Group and RXR Realty, plans to increase the value by upgrading the property to create new office and retail space. Another even larger transaction was the massive $2.29 billion sale of 11 Madison Ave., which is the largest single building transaction in Manhattan since the 2008 acquisition of the General Motors Building for $2.8 billion and one of the biggest commercial real estate transactions in U.S. history. The 29-story office tower was sold to SL Green Realty Corp. by a partnership comprised of the Sapir Org. and CIM Group.  The building is home to Credit Suisse Group AG’s U.S. division and soon to be the headquarters of Sony Corp.’s U.S. unit. International Capital Seeking Refuge Midtown East, with its soaring towers shaping the city skyline, is a natural draw for international investors seeking stability in today’s tumultuous global economic landscape. 2015’s sale of the landmark Waldorf Astoria Hotel at 301-319 Park Ave. is a clear example of this. Known worldwide for its lavish suites, dining and 5-star events, the property sold for $1.95 billion to Anbang Insurance Group Co. of China.  This transaction set a new record as the highest price paid for a new hotel in the United States. Manhattan’s Growing Retail Sector A third factor is that investors have had an increasing attraction to retail opportunities. While this trend has been seen throughout Manhattan, especially in SoHo, retail has also played a major role in some of the largest deals in the area. The Crown Building, 730-734 5^th Ave., was sold by Spitzer Enterprises and New York-based Winter Properties to Wharton Properties and General Growth Properties for $1.775 billion. The 26-story iconic office tower building features 400,000 s/f with 50,000 s/f of retail space and is leased by luxury jeweler, Bulgari, amongst other high end retailers. A Building Boom With more residents working long hours and seeking shorter commuter times, Midtown East has evolved to a place where people want to live as well as work and shop. The demand for new development projects has grown significantly as a result. A flurry of projects are already underway that are looking to capitalize on an aggressive residential condo market, a growing presence by retailers, and strong tourism driving up hotel occupancy and room rates. A great example of this trifecta is the recent sale of 520 5^th Ave. to Ceruzzi Properties and Chinese partner, SMI USA for $275 million. Industry sources have reported that the developer has filed plans to construct a 71-story tower, which will offer retail space, condominiums and a hotel. Institutional Investors Remain Active Leading global investment firms have long been drawn to Manhattan’s diverse and dynamic culture and have consistently changed the scope of this borough. In 2015, Manhattan’s largest apartment complex, Stuyvesant Town-Peter Cooper Village was acquired for $5.45 billion by institutional investors, Blackstone Group and Ivanhoe Cambridge from CWCapital Asset Management.  The development, which is home to 30,000 New Yorkers, spans 80-acres from 14^th to 23^rd Sts. and from First Ave. to Ave. C, and features 110 buildings with 11,250 rental apartments. With Midtown East’s desirable location to commuters, numerous retail opportunities and upsurge in residential development, 2015 underscored that the appetite for development opportunities in this area is anything but slowing down. With values rapidly increasing and buyers shelling out amounts at an all-time high, we expect to see more exciting development activity, as well as transactions involving existing multifamily buildings, over the year in Midtown East. From a broader perspective, Ariel Property Advisors’ near term 2016 outlook for Manhattan and the New York City market remains positive. Strong job growth is driving sound fundamentals, the City continues to draw significant capital as a ‘safe haven’ investment, oil prices are remaining low and supply continues to lag demand. That said, we are continuing to closely monitor the impact of the recent rise of interest rates by the Federal Reserve. Later this month, our Research Team will release its annual year-end sales report, which will close out the year and bring in the final numbers that impacted New York City in 2015.  It will be interesting to look at the final figures and reflect on the projects that are continuing to shape this City. For more information regarding the Manhattan investment sales market or available listings, Howard Raber can be reached at 212-544-9500 or via e-mail at [email protected] Howard Raber is the vice president, Ariel Property Advisors, Manhattan, N.Y. Tags: