Manhattan office sales prices fell by a staggering 50 percent down in the first quarter of this year down to just $442 per square foot – the lowest level seen in four years.
Research by real estate services firm, FirstService Williams, revealed there were just three Class A office transactions in Midtown Manhattan worth $950 million in the first three months of 2009. That compares to 14 transactions, worth more than $4 billion, during the same period 2008.
The firm said cap rates had also increased sharply owing to the past year’s volatility, lack of financing and general economic downturn, with rates of between 7.5 percent and 8.5 percent now “required to maintain a reasonable return on equity”.
As a result, sales prices were down to $442 per square foot in the first quarter of 2009, compared to $842 for the year 2008, $777 for 2007, $605 for 2006 and $458 for 2005.
“With rents in a freefall, no well capitalised owner with a seasoned property will be compelled to sell in this market,” said Mark Jaccom, chief executive officer of FirstService Williams, formerly known as GVA Williams, in a statement.
The prospects for further declines in rents was also hampering the sales market for Class A properties, with investors demanding a “substantial increase in the risk premium”.