Historical capitalization rates (cap rates) for real estate in new York and the rest of the country experiences cyclical patterns and vary depending on the specific market, for example, multi-family dwellings and to buildings in comparison with elevators and commercial real estate. As of the first half of 2018, the capitalization rate in Manhattan increased from the previous year by 3.8%.
Calculate the capitalization rate
The capitalization rate is the rate of potential return on real estate investment. It is calculated by dividing the anticipated annual income of the property, less the fixed and variable costs in its total cost. Analysts are closely watching cap rates, because they measure the return on investment. The appraisers used the capitalization rate approach to determine the income value of the property. The market-derived capitalization ratio is applied to net operating income of the property to assess the current value of the property.
Between 1984 and 2009, the average capitalization rate was 8.4% for buildings and 7.68% for apartment buildings with elevators. The capitalization rate for buildings with elevators has reached almost 12% in 1984 and 1992 and dropped to just over 3% in 2006. The cost for walk-UPS was slightly higher in each year of this period, except 1994, 2000, 2002 and 2004.
According to “National real estate investor,” $ 2.8 billion was invested in real estate in Manhattan in the first half of 2018. This number was increased compared with the previous year, but still significantly lower than the approximately $ 4 billion was spent over the same month in 2015 and 2016. Nevertheless, it shows that investors are still willing to speculate on real estate in new York due to low interest rates and significant tax benefits.
(For associated reading, see “3 ways to invest in new York real estate.”)