Manhattan Profits (Part I): The Economics of the Superslim Skyscraper

By Jason M. Barr        November 19, 2017

In the last decade, New York has seen a resurgence of skyscrapers. In particular, has been the rise of the superslim—a super-tall, ultra-thin luxury apartment building.

The definition of a superslim comes from the ratio of the building’s ground floor width to its height. The Empire State Building, for example, is relatively chunky, with a base-to-height ratio of 1:3. On the other hand, 432 Park Avenue has a slenderness ratio of 1:15; 53 West 53^rd Street (the MoMA Tower) is 1:12; and 111 West 57^th Street (the Steinway Tower), when completed, is to have a record-breaking ratio of 1:24. 1:10 is the benchmark for a slim tower.

Why are so many being built? Simply put: profits. Whether these structures are good or bad for society at large is a controversial subject (and will be discussed in a future post). But, fundamentally, the reason for this new breed of skyscraper is the confluence of three factors.

First is demand. New York, as an economic and cultural center, draws a strong international interest. The immense wealth that has accumulated to Earth’s one-percenters has fueled investments in New York City real estate. As long as developers do not ask too many questions, the number of apartment buyers is abundant.

Second, this vast wealth has motivated developers to satisfy the particular tastes of these investors, who seek luxury and exclusivity. This has driven technological innovations that allow for the superslims.

Third, I would argue that the sine qua non of the supertall lies with the (apparently innate) desire for humans to pay more to be on higher floors. Simply put, if people did not like to live, work, or play up in the air, then the skyscraper would not exist (or at least as we know it).

The economic theory of skyscrapers says that the profit-maximizing developer would keep adding floors until the cost of providing the last floor is just equal to the additional revenue brought in by that floor. The problem is that producing each additional floor costs more than the last one, due to the need for a stronger structure, and additional plant and equipment.

Figure 1 gives examples of construction costs for Manhattan. The figure shows the inflation-adjusted cost per square foot of building area versus the building height for 28 projects built between 2001 and the present. In short, the graph shows that costs increase from about $400 per square foot ($4,306 per square meter), on average, for a 20-story structure to about $800 per square foot ($8,611 per square meter) for an 80-story building.

But what motivates developers to pay the additional costs is, in large part, the height premium. The higher the floor, the greater the price buyers are willing to pay. The height premium is like a ripe apple dangling from a tree. How to get to the apple? Build a taller ladder. The sweeter the apple the more incentive to get a taller ladder.

Figure 2 presents the example of 217 West 57^th Street (Central Park Tower), currently under construction, and which is expected to have 95 stories. The graph shows the expected income per square foot for each unit versus the relative height of the unit. More specifically, after controlling for the size and features of the each unit, the height premium rises, on average, about $34 per square foot ($366 per square meter) for each floor up.

In truth, there is very little research on why this height premium exists or what determines its magnitude (I’ll blog more about it in the future), but it’s safe to assume two basic elements are at work. First are the views; the higher up you go, the better the vistas. However, if this was the only factor, we would see the height premium flatten at some point, as views on the 60^th floor are nearly the same as those on the 80^th floor. So the rest is likely attributable to buyers’ desire to be, literally, placed in a more favorable position in the social hierarchy.

How Can I Help You?

So let’s say you’ve decided to park some of your vast riches in a Manhattan condo, what are the amenities you might look for?

Privacy: Ultra-thin buildings, by their very nature, only allow for a limited number of units per floor. No need to worry about bumping into pesky neighbors.  No longer is the penthouse reserved only for the top floor.

Ceiling Height and Open Floor Plans. Large ceilings and rooms with no columns provide a feeling of spaciousness. A unit in a superslim provides this in spades. The reason 432 Park Avenue, for example, is able to rise so tall is because New York’s zoning rules only regulate the amount of floor area; they are silent on the height of the walls. Today’s superslims have ceilings that are some 25% higher than has been traditional, rising to 15.5 feet (4.7 meters) rather than 12.5 feet (3.8 meters). Further 432 Park Avenue was designed with no interior columns, giving each unit a large loft-like feel. Higher ceilings also means larger windows (imagine owning your viewing deck?).

Manufacturing Luxury

How is this all possible?

The Core: The building’s core, which contains the elevator shafts and stairwells, takes up a significant amount of space that would otherwise generate income. New stairwell technology reduces space usage by 10%. Plus given the super-thin nature of the structure with its low overall occupancy, fewer elevator banks are needed, adding additional living area.

Wind bracing: Superslims are super-light and subject to strong wind forces. No one wants to live in an apartment that feels like a boat in the Bering Sea. Technological improvements include large tuned mass dampers on the upper floors that act as pendulums when the building sways, providing counter forces that slow the movement. At 432 Park Avenue, there are no glass windows on the mechanical floors, allowing wind to pass through the building at regular intervals, making the structure more aerodynamic.

Rearranging Plant and Equipment:  By placing the plant and mechanical equipment in the lower floors, every unit is guaranteed to have a good view.

In the next post, we will play the role of a New York developer and estimate the costs, revenues, and profits for a hypothetical super-tall superslim construction project.