Wien: Dark days ahead for luxury RE in London, NYC

The prediction was one of four that Blackstone’s Bryon Wien made about real estate in 2016.

Luxury real estate in London and New York City is headed for a sharp downturn this year, according to Bryon Wien, The Blackstone Group’s multi-asset investment group vice chairman.

Wien’s list of Ten Surprises for 2016, which was released yesterday, included a bleak forecast for high-end residential real estate in two of the world’s hottest markets, New York and London.

While Wien did not elaborate further in his report, research from real estate advisory firm Knight Frank appeared to support his prediction. Knight Frank, which tracks the luxury London market, wrote in a December research report that “the prime central London market remains fragile and price-sensitive,” underscored by the fact the number of properties withdrawn from sale between April and November 2015 rose 12 percent from the same period in 2014.

Wien defined a surprise as “an event I believe is probable, with a better than 50 percent chance of happening during the year, but which the average professional investor would only assign a one-in-three likelihood of taking place.”

Both the London and New York markets will suffer, Wien wrote in his yearly report, as Russian and Chinese buyers disappear. The strength of the US dollar against other currencies continues to curtail demand from investors globally, and foreign investors may be dissuaded from buying in London specifically after new tax rules on high-end homes took effect, according to the Knight Frank report. Indeed, the advisory firm reported that a Chinese slowdown would affect London and New York equally, at a risk level of six out of 10.

Wien also wrote that low oil prices would cause Middle Eastern buyers to be cautious real estate investors. Among a list of 10 global cities, such investors would pull back capital in Geneva and Sydney in particular if a further drop in oil prices were to occur, according to Knight Frank.

Finally, Wien warned against the oversupply of luxury condominiums, which could put developers under financial stress. Other real estate executives have sounded the same note of caution: David Von Spreckelsen, the New York division president of the Toll Brothers’ City Living unit, told Bloomberg that a glut of unsold buildings has changed how the company plans to develop future properties.

“The days of super pricing and of raising prices every other week, I think, are probably past,” Von Spreckelsen said. “Supply has started to catch up with demand.”