At the second presidential debate in October, President Trump referred to New York City as a “ghost town.” As ground zero for the country’s first COVID-19 outbreak, and as an epicenter of the raucous protests that have engulfed much of 2020, many of the city’s richest residents have fled their apartments for the suburbs or the country.
But New York actually seems to be on the rise, at least according to a new report by real estate monitors Douglas Elliman and Miller Samuel. In October, for the first time in over a year, new rentals increased in Manhattan and property sales began to creep ahead as well.
The cause of this sudden breath of life in the nation’s most competitive real estate Market may be the same reason it began to falter in the first place. As wealthy New Yorkers fled the city from the pandemic, leaving a record number of vacant apartments available. As a result, rental prices have fallen, luring younger, less affluent renters to consider moving to the city once again.
According to the report, new leases in Manhattan increased some 33% last month, making it the best October in 12 years. And the median net effective rent (which is the typical rent paid on an apartment including discounts), is currently about $2,868. That constitutes a 19% fall from this time last year, a record decline for the figure.
The type of units experiencing the sharpest rent declines is also notable. Rent on smaller apartments, which typically attract younger renters, fell the most. The report notes that studio apartments were down 21%, while one-bedroom prices dropped 19%.
“I think we’re at a tipping point where the consumer starts coming back to the city,” said Jonathan Miller, CEO of realty consultant firm Miller Samuel. “Sellers are slowly recalibrating what the values are, and the lower pricing is beginning to bring more people in.”
Still, Manhattan real estate faces its fair share of hurdles. An all-time high of 16,145 apartments sat unrented in October. And the borough’s vacancy rate, which typically floats around 2%, is currently over 6%. But the abundance of vacant apartments means that landlords have few choices. They will likely have to continue dropping rent prices to lure young tenants and suburban refugees back to the city.
Good News Ahead
A quick look at the numbers show that landlords are already offering a host of incentives for new renters. According to the report, over 60% of new leases in October were attached to some form of incentive or discount. On average, landlords are currently offering more than two months of free rent.
Even the sales market, which is far smaller than the rental market in New York, is seeing signs of hope. On the one hand, apartments are sitting on the market an average of 33 days right now, which is far longer than the 26-day average about a year ago. But brokers say they have witnessed a surge of property showings in recent weeks. The election and recent news of a potential COVID vaccine have, according to brokers, encouraged a spike in showings, inquires, and interest from buyers. In fact, according to the brokerage firm Serhant, sales contracts between November 1 and November 10 jumped some 21%.
To be clear, sale prices have not declined nearly as much as rental prices. But brokers believe that even a 5% to 10% reduction in sale prices could attract buyers who have been waiting years for an affordable entry point to Manhattan property ownership.
Garret Derderian, Serhant’s director of market intelligence, echoed Miller’s assessment. “The market may now have reached a turning point,” he says. He attributes this growing confidence to the fact that “the uncertainty surrounding the presidential election is behind us, and a possible vaccine is on the horizon.”
“Many buyers who have been watching from the sidelines as prices declined and negotiations increased seem poised to jump into the market,” Derderian says. “Many already have, understanding once a vaccine is found, the market will shift again.” And the shift will probably be upward.
Of course, it may be premature to celebrate the rebirth of New York real estate. Much of the optimism hinges on symbolic news. The Pfizer COVID vaccine, for instance, which made headlines this week after an effective human trial, is still months away from approval and widespread use. (Dr. Anthony Fauci warned that large-scale disbursement of the vaccine is unlikely until April 2021). And the result of the presidential election in favor of Joe Biden may trigger a sigh of relief in the deep-blue city, but it doesn’t guarantee an end to the era of protest that has defined New York this year. And with unemployment high across the city, and with City Hall facing a serious budget deficit, property taxes are likely to increase in the months ahead.
Nevertheless, experts say that the buying and renting increases of October represent a hopeful, albeit glacial, recovery for the country’s largest real estate market.
“A lot will have to happen for New York to come roaring back,” admits a cautiously optimistic Jonathan Miller. “It’s going to be a multiyear process.”