With condominium prices surging to record highs, an increasing number of multifamily building purchases are being made with the intention to convert the existing rental properties to condominium use, Ariel Properties notes. This is translating to higher prices per square foot in Manhattan, rising to $866 per square foot in 2014, a 25% increase over 2013. Manhattan's dollar volume also rose by 15% year-over-year, even as its transaction volume decreased slightly.

In other key highlights from the report, dollar volume for multifamily transactions in Manhattan increased 15 % to over $5 billion, despite a slight drop in the number of transactions taking place. The Upper East Side claimed four of the top 10 largest multifamily deals across the city last year, including the $485 million sale of two mixed-use elevator buildings located at 1660 2^nd Ave. and 160 E. 88^th St.

Meanwhile, Brooklyn had a tremendous year with more than $2 billion in multifamily sales, a year-over-year increase of 88%, and 222 transactions, more than any other submarket. Brooklyn also claimed some of the most active neighborhoods in the city including Bushwick, Bedford-Stuyvesant, and Williamsburg.

Sales of core multifamily buildings extended to other neighborhoods as well. In December, a luxury rental building at 101 Third Ave. in Boerum Hill sold to a European investor for over $52 million, or $746 per square foot.

Investor confidence is very high in the Bronx as the average multifamily capitalization rate dropped more than 100 basis points in the past year to 6.07%. The bourgeoning South Bronx has attracted investors, developers, and tenants to pair with a strong pipeline of residential and hotel developments, which had a positive effect on the entire borough's pricing. While transaction volume in the Bronx was up 18% from 2013 to 186, dollar volume increased 49% to over $1 billion.

With catalysts such as the 125th street revitalization, rising prices in core Manhattan, and an improving retail scene, investors continue to flock to Northern Manhattan as they look to capitalize on rising rents. East Harlem saw some dramatic growth this year, with some multifamily assets selling for more than $400 per square foot.

Lastly, Queens followed up on a robust 2013 with a solid year, totaling $884 million multifamily sales—down 17% from last year. Of note, a Kew Gardens Hills portfolio made up of 12 elevatored buildings and 1,269 units sold for $216 million, or $209 per square foot. Rents continued to climb throughout the borough, most notably in the neighborhoods of Northwest Queens like Astoria, Long Island City, and Sunnyside.