Based on the low mark of 1.6% turnover among the city'sapproximately 165,000 buildings set in 1992 and repeated in thepost-recessionary year of 2003, "we assumed 1.6% was the baselineand volume would never go any lower," Robert Knakal, chairman ofMassey Knakal, said Tuesday morning at a media briefing. Yet with aturnover rate of 0.87% citywide, "2009 shattered that theory."

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Depending on the borough and property sector, turnover in 2010will range from 1.2% to 1.6%. "We think we have passed the bottomin terms of low volume," said Knakal. The yearly average for thepast 25 years has been 2.6%.

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The year's $6.3 billion in sales of commercial and multifamilyproperties worth at least $500,000 was off 90% from the 2007 peakof $62.2 billion, Knakal said. Down even more sharply on apercentage basis was the average selling price of Manhattan assets:$4.4 million last year, compared to $52.5 million in '07. With thatsaid, the borough also fared best in terms of the number oftransactions: off only 67% last year from the '07 peak.

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However, while both rising cap rates and falling gross incomemultipliers point to a decline in values, and Knakal identified "avery clear trend toward smaller transactions," the firm doesn't seethe decline in volume as due either to lack of buyer appetite or tothe difficulty in securing debt. "The demand side has been great,but the supply of available properties has been very weak," Knakalsaid.

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Citywide, prices per square foot have been rising since thefirst two quarters of '09, and the availability of better-qualityassets has been a major factor. But Knakal pointed out that theimprovement in per-square-foot pricing does not signal that thebottom was reached a year ago. Instead, it represents "a naturalbounce-back" from pricing that went too far in the oppositedirection in the wake of the Wall Street meltdown.

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"While we do not see these increases as a clear indication thatwe have reached an absolute bottom, we do believe that the marketis in the process of 'bottoming,'" according to the year-endreport.

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In fact, there are several factors that will continue to exertdownward pressure on pricing, not least of which is the FederalReserve's exit strategy from TALF. Knakal said it could take anumber of forms, which include: the Fed ceasing to buy troubledassets, an increase in the federal funds rate, putting more supplyon the market with a resulting decline in values or drainingreserves out of the system. Declining employment and deleveragingof commercial debt will also challenge pricing, although the greatsupply of capital on the sidelines will help strengthen it.

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On the demand side, Knakal cited a couple of positive trends.For one thing, institutional capital is coming back into themarket, having sat it out for the past year. Another encouragingsign is the influx of foreign investors. Knakal observed that manyare not real estate players but have made their fortunes in othersectors. "They're coming to New York City and buying buildings asthough they're safety deposit boxes," he said.

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Along with a discussion of overall trends, Massey Knakal's mediabriefing presented year-end reports focused specifically onManhattan, northern Manhattan, the Bronx, Brooklyn and Queens.These were offered with commentary from local experts, includingmanaging directors Kenneth Krasnow and Kyle Mast.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.