WITH REGARD TO PRICING, as usual, the multifamily sector has performed best. In 1Q10, the average capitalization rate on elevator properties rose just 3 basis points from the 2009 average, to an average of 4.55 percent. Walk-up apartment buildings performed well also, with cap rates dropping 5 basis points to an average of 5.0 percent from a 2009 average of 5.05 percent. Interestingly, the average price per square foot for walk-ups continued its 2009 trend of remaining higher than the price per square foot attained for elevator properties. Walk-ups averaged $540 per square foot; elevator buildings averaged just $386.
In the mixed-use sector (properties where the retail component represents at least 20 percent of the building’s square footage), 1Q10 saw cap rates rise 52 basis point, from a 2009 average of 5.58 percent to 6.1 percent. This cap-rate expansion moved in tandem with a reduction in value per square foot, as it fell from a 2009 average of $599 to a 1Q10 average of $564, a 5.8 percent reduction.
The retail sector, which we had indicated had overshot to the downside, with nearly a 50 percent drop in value from the peak of the market, saw an increase in the average price per square foot, moving from the 2009 average of $1,071 to a 1Q10 average of $1,246. This figure represents a 16 percent increase in value.
In the office building sector, average prices per square foot increased about 10 percent, from the 2009 average of $397 per square foot to $438. Within the office building sector, however, it is important to keep in mind that an office building’s exposure to the marketplace has a significant impact on its price level. In 2009, as office building values on a per square foot basis fell by 55 percent from the peak, those that were well leased with low vacancy and little short-term lease rollover had lost only 25 percent of their value. Buildings with very high vacancy, and significant lease rollover in the short term, lost almost 70 percent of their value. Understanding the composition of the properties being sold is critically important to determining performance within the sector.
Office condominiums showed a similar increase to that seen in the office building sector, with an 11 percent increase in price per square foot, from a 2009 average of $805 to a 1Q10 average of $879.
The development-site, or land, market continued its surprising performance, with four 1Q10 sales averaging $341 per buildable square foot.
Specialty-use properties, those acquired by nonprofit organizations, foundations, foreign governments, religious organizations or schools, continued an upward trend, with a 7 percent increase over the 2009 average of $951 per square foot by reaching $1,015 in 1Q10.
FIRST QUARTER SALES activity was positive in Manhattan from many perspectives, and an even stronger 2Q10 is anticipated based upon the activity we have seen in the first quarter and, more importantly, based upon the surge in contract executions in the first three months of the year.
The capital that has been sitting on the sidelines has transited to the playing field, as the motivation to deploy capital continues to increase. Fortunately, the supply side is beginning to loosen, creating opportunities for all of that capital. We expect the Manhattan market to lead the way, with the boroughs lagging behind; but they will, eventually, follow the straw that stirs the drink.
Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and has brokered the sale of more than 1,050 properties in his career.
