What Drives Prices Of Manhattan’s New Development Luxury Real Estate Market Today?
Pricing apartments in Manhattan typically boils down to two main factors: the location and what is being built. Another factor that separates the luxury market from the rest of the market is the dollar per square foot asking price. In Manhattan, that dollar per square foot benchmark is now @ $3,000 a square foot. Here is a point of reference for how much the luxury markets’ dollar per square price has risen over the years. Twenty plus years ago I purchased my Fifth Avenue condo that was asking $1,000 a square foot. It was considered such a ridiculous price at the time that New York Magazine ran an article about the developer calling the project a “Folly”. Recently I got a record $4,200 a dollar per square foot in my Fifth Avenue condominium for a client.
Other things that considered when developers are trying to nail down a pricing strategy such as the unit mix, absorption rates (the amount of time it would take to sell the current amount of properties on the market), amenities package, and the developer’s bottom line to make a profit.
Here is something that you need to know about the most desirable locations in Manhattan today. Times have changed dramatically since I began selling real estate in Manhattan. Back then the most prime and expensive locations in Manhattan were Park to Fifth Avenue followed by Central Park West. Today there are luxury locations all over Manhattan that vary from below $3,000 a square foot such as the East Village, Lower East Side and Harlem. Billionaires row area along 57th street are topping out at about $7,000 a square foot. Developments in areas like the Upper East Side, Upper West Side, Tribeca, and Greenwich Village are more likely to be priced in the sweet spot starting at $3,000 a square foot.
Within these new luxury locations there are other things that are considered when pricing such as the building’s location. If it is on a corner lot apartments will get better light, views and air quality. If the building is on a less busy street it is more desirable because there will be less noise. The development’s closeness to parks, restaurants, entertainment and schools are taken into consideration when pricing as well as closeness to transportation. Other factors that are considered are iconic views, private outdoor space, lounges and shared outdoor areas and health and fitness areas. These are all very important in today’s market.
While price per square foot may seem the “holy grail” for defining luxury property, it turns out that according to Jonathan Miller, a top appraiser and author of our firm’s market reports “buyers buy by price”. Jonathan says that even if a building has a lower dollar per square foot than the competition, the unit price could be too high because of the individual condominium’s size. The inventory that is $5 million and above in Manhattan is high. In this case, there will be some “bargains” down the road.
Perhaps the most important factor in a softer luxury market is the price that the developer needs to sell units for in order to make a profit. That impacts the buyers’ ability to negotiate a price down to meet the “real “market price. For example, a developer may pay a certain price for the building say $100 million and wants a $150 million total sales volume for his profit margin. Then the units are priced accordingly. Penthouses will have a much higher dollar per square foot price tag as well as those with views and outdoor space. The less desirable units will priced in the bottom dollar per square foot range for the building.
Today we are in a “negotiation market”. Pricing units also take into consideration this “negotiation “factor. In the boom market of 2014- 2015 developers, priced units at prices that they wanted to achieve. This is no longer the case.
There are going to be developers that are going to be winners in this market and others who may be losers. Much depends on how much the developer paid for the land. Those who bought land in the expensive years of 2013- 2015 are not going to be able to adjust their unit pricing now because of how much they paid for the land and high construction costs. The market may just not be there for their building.