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Three Cents Worth: Units In New Developments Grow Larger

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This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller charts the square footage of closed sales.

For this chart, I looked at a little more than a decade of Manhattan closed sales by square footage, breaking out the market by new development sales and re-sales. During this period, the average square footage of a new development sale was 1,382—15.6 percent larger than the 1,195 average square footage of a re-sale. However, new development sales size showed significant volatility as developers adapted to the changing market. The underlying driver of volatility is the quest to achieve the highest price per square foot premium a developer realizes by creating larger contiguous space. As a result, the much chronicled "micro-unit" phenomenon falls short and can't become mainstream under current market conditions without external incentives (i.e. government). The math doesn't work.

A few takeaways for each type:

New development sales are the wild card, with significant changes in size, ultimately—and more subtly—influencing the re-sale market in later years. From 2003 to 2004, affordability was plummeting—no matter how much lenders were removing any hint of underwriting standards. From late 2004 through 2006, the average size of a new development unit collapsed, becoming more in sync with the re-sale market size as developers built units with less square footage (smaller sized 1/2/3bedrooms) to keep the prices down and the volume flowing. The recent surge in new development square footage reflects the super-luxury market, which dominates current activity, but remains a very small subset of the market. I suspect this new category will skew the resale market a little higher over the next few years.

Re-sales are the consistent sales type, not seeing the same volatility as the new development market. Larger new development sales that closed from 2003 to 2005 began to turnover, pushing the average re-sale size to a higher level that has remained through today.
· Miller Samuel [official]
· Three Cents Worth archives [Curbed]