US Commercial Real Estate Recession Deepens
Vacancies Surge Even in Financial Hub Wall Street
Dark clouds of uncertainty are gathering over the New York Manhattan real estate market. A report has emerged that an office building, which was worth 450 billion won 18 years ago, was recently sold at a bargain price of around 11 billion won. Analysts say this reflects a deepening recession in the U.S. commercial real estate sector.
On the 1st (local time), the U.S. 'New York Times (NYT)' reported that a 23-story commercial building at 135 West 50th Street in Manhattan, owned by UBS Realty Investors, was auctioned off on the 31st of last month for $8.5 million (approximately 11.6 billion won).
This building was a high-priced property with a sale price of $332 million (about 450 billion won) back in 2006. In about 18 years, its price has plummeted to one-fortieth of that value. The NYT expressed concern that such low-priced sales could deliver a significant shock to the entire commercial building market in New York.
The building’s ownership is split between the building owner and the landowner. It is reported that the building owner could not withstand the increased vacancies following the COVID-19 pandemic and thus put the property up for sale. The building owner had to pay monthly land use fees to the landowner, but when the burden became unbearable, they ultimately decided to sell at a bargain price.
During the pandemic, major U.S. cities including New York experienced a rapid population decline, and even after economic activities resumed, the demand for office space did not recover due to the rise of remote work. To make matters worse, recent sharp increases in benchmark interest rates have raised debt servicing costs. In the case of the building sold for 11.6 billion won, only 35% of the total office space was occupied.
Meanwhile, this is not the first time historic buildings have been put on the market at bargain prices. In June, a building at 1740 Broadway near Central Park in Manhattan was sold for $185 million (about 250 billion won), a 70% discount from its purchase price. This building, completed in 1950, has stood for over 70 years as a historic landmark.
As the real estate downturn deepens, the scale of asset foreclosures is also increasing. As of the second quarter, the scale of real estate asset foreclosures in the U.S. approached $20.55 billion (about 28.4 trillion won), marking the highest level in nine years. The NYT reported that real estate experts expect the scale of foreclosures to increase further in the future.
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