Floor Poor? How Manhattan Properties’ Height Affects Prices

When it comes to apartment buildings, there are many ways to differentiate — “doorman” versus “non-doorman” buildings are one key distinction, for example. But perhaps the most basic or popular way to differentiate buildings is by contrasting those with elevators and those without.

As such, what floor a property is on can have a significant effect on its price in Manhattan.

Floor vs. Price: An Overview

Looking back at sales since 2005, the long-term trend is clear: Higher floors lead to higher prices. But that’s only part of the story.

Let’s begin with the shape of the columns from left to right in the graph above. It is a nearly classic power-law distribution, with 80% of the sales occurring on 20% of the floors. Case in point, the average floor across all of these sales is 9.78. As much as Manhattan is a vertical market, the mass of sales in units below the 10th floor shows that for most residents, the views are of each other and not necessarily sunsets over New Jersey.

The reason for the bulky nature is that pretty much every apartment building in the city has floors one through five. Why stop at five? In 1929, the city’s new Multiple Dwelling Law required elevators over five stories. So, before 1929, the sixth floor was the top (excluding the odd walk-up above the fifth floor — yes, they still exist!). After 1929, the sixth floor was served by an elevator but was still quite nearly the top for essentially all but the fancier apartment houses.

Hence, we have two overlapping markets on the lower floors: the elevator versus non-elevator markets.

Non-Elevator Buildings

As mentioned earlier, sales on or below the fifth floor encapsulate the walk-up market. Contrary to elevator buildings, walk-ups typically demand premiums for less stair time.

Under that logic, though, shouldn’t first floors show up the most? Not only are there typically fewer first-floor units (the first floor usually gives up square footage for pedestrian items, such as mailboxes and entry vestibules), but fewer people want first-floor units, so developers don’t prioritize them. Still, note that the chart above, focusing on walk-ups, suggests the bargains are on the fourth and fifth floors.

Currently, the premium for a second or third-floor unit compared to a fifth-floor one is around 12% to 14%. If a flight is 15 stairs, that means you’ll end up saving over $100 per stair climbed over a ten-year holding period!

Elevator Buildings

As convenience rises, so does price.

Note the general increase in median price for floors 1-5 in elevator buildings. The uptrend as floors increase is clear.

(Quick side note – on the first chart, notice how the number of sales drops abruptly on the 13th floor? Many residential buildings in the city simply don’t have them because the number 13 is considered an unlucky number for many people. In those buildings, the floors jump from 12 to 14.)

Continuing the climb into high-rise territory (over 20 floors), the number of units starts to thin noticeably after the 30th floor. Much of this has to do with the simple math of building costs as floors rise. Certainly, in recent years, “supertall” developments have made news, but in truth, they are few and far between, representing less than 1% of all apartment buildings. But with scarcity comes perceived value. As the number of units perched on ultra-high floors falls, their price rises, sometimes dramatically.

Hence, there are a couple of “kinks” in the curve where the slope of the trend increases. The first, around floor 20, is slight but hints at the fact that there are now fewer units in the overall market. The second kink in the price curve is around the 40th floor. This is a noticeable uptrend and suggests that scarcity is a more determining factor in price than simply space. For instance, consider two similarly sized units with the same overall utility, but one is on the 28th floor, and one is on the 45th floor. While the scope of views may be nearly the same, the price curve shows buyers will bid up for the same unit on higher floors.

Takeaways For Sellers and Buyers

Sellers

If you are considering selling your unit today, be sure to keep your analysis of recent sales as apples-to-apples as possible. As much as you need to find like-sized units in similar buildings, you’ll need to keep your floor range in mind as well.

For sellers on higher floors, be aware that without very recent same-line sales in your building as a guide, higher-priced floors behave in many ways like the art market, with the final value determined by buyer intuition more than the published price per square foot.

For sellers in walk-up units, keep in mind that your unit will likely trade at a discount to the overall market and that units on/above the fourth floor may be penalized even more for the extra steps involved.

Buyers

If you are in the market for a unit today, understand that market-wide prices are not a one-size-fits-all guide. To better understand your price range and possible floor premiums, focus on utility first and then factor in floor height using recent sales and currently listed units.

Keep in mind that as floors start passing 20, the prices become less precise and more driven by scarcity. If you’re searching for the best value possible, consider top-floor units in walk-up buildings.

This post first appeared on Forbes.com. To see the original, click here.