A man enters a building that houses rental apartments in New York City on August 19, 2020.
Eduardo MunozAlvarez | VIEW press | Corbis News | Getty Images
Apartment rents in Manhattan almost doubled in December, potentially reversing the trend in the city’s difficult real estate market.
According to a report by Douglas Elliman and Miller Samuel, the number of new leases signed in December rose 94% year over year to 5,459. Profits were the largest increase in nearly a decade and the third straight month of lease profits year over year.
“It’s a small step in the right direction,” said Jonathan Miller, CEO of valuation and research company Miller Samuel. “The metrics are still very weak. But at least it shows that there is demand.”
The reason for the rise in rents is a continuing fall in prices. Median effective net rents – or rents actually paid, including discounts and incentives – fell 17% to $ 2,800 per month in December. Landlords offer an average of two months of free rent to attract tenants, many offer more.
Brokers say there are three groups that drive demand. First, there are the New Yorkers who live in the city and take advantage of the price cuts to move to larger or newer apartments. The second group includes New Yorkers who left in the early days of the pandemic in March or April but are now returning. And then there’s a third group that includes couples and families who have sold their properties in the suburbs for big price hikes and are testing the water in town for the first time given the better values.
However, real estate agents and landlords say a full recovery in Manhattan real estate is likely still a long way off. Despite the drop in prices and the rise in rents, Manhattan still has near-record numbers of empty apartments. In December, 13,718 apartments were listed, more than two and a half times the previous year. According to Miller, the vacancy rate of 5.5% is almost three times the historical average of Manhattan.
Many landlords and buildings also keep empty apartments out of the market for fear of creating even more oversupply. Miller said that “shadow inventory” or “managed inventory” means that the actual number of empty, unlet apartments in Manhattan is likely to be over 20,000.
“I think we are in the preseason of recovery,” he said.
The increases in rents are being largely driven by wealthier tenants as high earners have largely escaped the economic fallout from the pandemic, while low-wage and service workers have borne the greatest pain. According to the report, leases for three-bedroom apartments, which rent an average of $ 8,000 per month, rose 171% in December year over year.
At the same time, the effective rents for the smallest studio apartments fell by 19% and the growth in new rentals was significantly lower.
The strength in the upper price segment, which is partly borne by the rising stock market, is also evident in the market for home sales. While total home sales declined 21% in the fourth quarter, home sales priced more than $ 5 million increased 23% year over year.
“It reflects the patterns of unemployment,” Miller said. “The low-wage workers were hit harder.”