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Shrinking vacancy and higher rents in apartment market.

As we move into 2007, the investment sales market for apartment properties in New York City has remained favorable with transactions continuing at a brisk pace.

Many in the industry have been surprised by the robust nature of the market, anticipating the much-talked about real estate downturn to take hold.

The highly publicized $5.4 million sale of Peter Cooper Village--once a middle-income housing project--demonstrates that rental rates continue to rise across the city, indicating that a downturn is nowhere in sight. In addition, operating fundamentals continue to strengthen across the city.

Looking ahead to 2007, vacancy fell to less than 4% in each of Manhattan's submarkets last year and will continue to edge up modestly in 2007. Properties in the Upper West Side and Upper East Side will maintain a history of low vacancy and consistently strong rent growth.

Additionally, prospective residents are increasingly warming to outer boroughs such as Brooklyn and Queens, where vacancy is projected to reside in the mid-3% range.

Apartment properties near transportation hubs in Brooklyn and Queens seem positioned to perform extremely well in the quarters ahead.

On the development front, completions are projected to rise this year, led by a 50% increase in new supply in the borough of Manhattan.

Owners and developers, though, will be monitoring the status of the city's new tax break proposals that would affect the type of units to be built in new housing projects.

With development in the city already complicated, and possibly becoming more difficult pending the enactment of proposed tax breaks, purchasing existing buildings remains the most expedient way to establish a local portfolio.

Last year, the median price of properties in the borough of Manhattan rose 19% to $200,000 per unit, an amount that is likely less than replacement cost. Investors remain willing to accept initial returns ranging from 4.5 percent to 5.8%. In the outer boroughs, meanwhile, deal flow is expected to accelerate as more owners realize that properties listed for sale draw an expanding number of interested buyers.

Over the long term, properties in Chelsea and a number of emerging downtown neighborhoods will attract a greater number of investors.

Redevelopment efforts in the boroughs, particularly in Brooklyn, will stimulate greater long-term renter demand and motivate investors to establish local portfolios sooner rather than later.

By Peter Won Der Ahe, director,

Marcus & Millichap

National Multi Housing Group
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Title Annotation:Annual Rewiew & Forecast
Comment:Shrinking vacancy and higher rents in apartment market.(Annual Rewiew & Forecast)
Author:Won Der Ahe, Peter
Publication:Real Estate Weekly
Date:Feb 7, 2007
Previous Article:Manhattan's year of prosperity.
Next Article:Buyer bulks up.

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