The True Value of Outdoor Space
As New Yorkers we all know the value outdoor space adds to our daily lives but what is it really worth to the bottom line?
As the summer rolls in, we at The Modern Agent welcome the opportunity to discuss one of the most sought after amenities for any apartment – private outdoor space. We’ve seen every type of space imaginable, from a small balcony in a high-rise condo building, to an expansive penthouse roof deck, and even a large backyard garden of a grand townhouse.
For our clients looking to buy or sell property with this enjoyable amenity, a question we’re regularly asked is “How do you value outdoor space, compared with the interior of the unit?” We’ll dive into this topic and present how we and the experts go about performing this type of analysis.
What The Experts Say
Jonathan Miller of the well-respected NYC-based real estate appraisal firm, Miller Samuel, has written extensively on this topic and believes outdoor space square footage should be added to interior square footage at a 25-50% portion of what interior square footage commands. For example, if an apartment has 1,000 square feet of interior space and 500 square feet of outdoor space, he would take 100% of the 1,000 square feet and add it to 25-50% of the 500 square feet to obtain an Adjusted square footage for the overall unit.
This is surely a wide range, but provides a helpful starting point to get a sense of how to fairly value an apartment that possesses outdoor space.
What The Modern Agent Says
When working with clients, I generally agree with Jonathan Miller’s outdoor space valuation range, but typically take a straightforward approach and apply 50% of the outdoor square footage to the overall space total, when calculating price per square foot. Since this process is a bit more art than science, taking 50% offers some flexibility on the price.
Factors That Affect Outdoor Square Footage Value Percentages
To help get a better understanding of how to determine the specific percentage to use in these cases, it’s important to take into account several factors that could impact the value of a given outdoor space.
1. Usability & Layout
The ability to use the space for different purposes will certainly impact its value. If a space is narrow (e.g. 2-3 feet depth) and can only be used to have a small garden or provide standing room only, it may command a smaller value percentage than a space that has the same square footage but has a square layout, allowing for a table and chairs (more flexibility).
Beyond usability, Miller says that if the outdoor space is significantly larger than the interior, the value percentage will go down due to diminishing returns from the offset increase in potential maintenance or common charges, as these expenses tend to rise with larger outdoor spaces.
An outdoor space on a low floor looking out onto the street with little privacy is very different than a similarly sized rooftop space with great views and considerable privacy.
4. Private vs. Semi-Private
Of course, sharing outdoor space with your neighbor (semi-private) is very different than having your own, which will certainly impact the value percentage of the space.
5. Miscellaneous Issues
There are a variety of other potential factors that can impact the value percentage of outdoor space, including anything blocking the use or interfering with enjoyment of the space to its maximum potential.
Target Apartment Example: Adding Outdoor Space
Let’s use the example of a one bedroom 800 square foot unit at 303 East 33rd Street with an average price per square foot of $1,509. The apartment has a nice 25 foot by 10 foot terrace with a total of 250 square feet of outdoor space. So how do we add this to the total space equation and what is the effect on the overall price?
- Interior: 800 square feet
- Outdoor: 250 square feet
- The Modern Agent Outdoor Square Foot Percentage: 50% (50% x 250 = 125 square feet)
- Average Price per Square Foot: $1,509
Adjusted Square Footage Calculation
800 (interior) + 125 (outdoor) = 925 square feet
Adjusted Price (With Outdoor Space)
$1,509 average price per square foot multiplied by 925 square feet = $1,395,825
Therefore, per our calculations, an approximate price for the Target Apartment is now just under $1.4mm.
Outdoor Space vs. No Outdoor Space: A Price Comparison
Taking a look at two example scenarios, the presence of an extra 250 square foot terrace adds approximately $150,000 to the price point of the Target Apartment; certainly a nice valuation improvement.
Scenario 1 (no outdoor space): 800 square feet = $1,207,200 (800sf x $1509 avg $/sf)
Scenario 2 (includes outdoor space): 925 square feet (Adjusted for outdoor) = $1,395,825
Added Value: $1,395,825 – $1,207,200 = $188,625
Note: This is a simplified approach to valuation and as mentioned, other factors may influence these calculations.