The capitalization rate of Manhattan office buildings continued to decline in the first quarter of 2011 and now sits at a nation-wide low 6 percent, according to a PricewaterhouseCoopers survey of investors. The next lowest cities were Washington (6.48 percent), San Francisco (7.39 percent) and Los Angeles (7.44 percent).
The capitalization rate measures the rate of return on investment that a buyer can expect after one year of ownership. Manhattan’s capitalization rate in the fourth quarter of 2010 was 6.02 percent, and it was 6.65 percent during the first quarter of last year, Crain’s reported. The steady descent is indicative of an improving commercial real estate market. Investors’ returns decrease as real estate prices increase — a function of high demand in the commercial market. The survey shows most investors to believe that the capitalization rate will hold stead in the near future. This follows reports from earlier in the month that anticipated commercial real estate purchases across the nation in 2011 would double over the 2010 rate. [Crain’s]