The New York City rental market, like all other segments of the economy, is seeing unique times. There is, of course, no precedent for a shutdown of the world’s economy nor the way such a shutdown would affect New York real estate. As such, there are probably few predictions that one should make about anything in the rental market other than the very near future. One can, however, sense certain trends on a day-by-day basis, if only anecdotally.
In April, we saw relatively few defaults or even requests for concessions in Manhattan and Brooklyn. The vast majority of tenants paid their rents. It remains to be seen whether or not May will yield the same largely consistent rent rolls. There is one reason to believe that it will. In the major New York industries, we have so far seen very few layoffs or even furloughs. Most tenants in New York whose salaries exceed $100,000 and who work for the banks or Fortune 500 companies are still employed. They are simply being paid their same salary to work from home.
The volatility of the stock market in the second quarter of the year will unquestionably lead to lower trading volume. Lower trading volume will inevitably translate to lower bonuses at the end of 2020. However, if such market losses affect the New York rental market, they will not likely do so until 2021, when bonus income, upon which Wall Street depends, is clearer. Such a trend is likely to have some effect in depreciating the market. However, taken by itself, it does not in any way translate to the losses in revenue that landlords faced between 2008 and 2010, when massive layoffs continued throughout the banking world.
Tenants in New York are certainly not yet pessimistic. While in-person showings of apartments are not permitted, virtual tours have proven to be very effective in leasing units. We have been able to lease most of our units in the past month with virtual tours and electronic signatures on the leases. While concessions on such apartments are up from a year ago and while new-effective rents are slightly down, we have not seen in these leases anything like the depreciation in residential rents that we saw in 2008 through 2010. On the contrary, the attitude of many tenants who have rented my listings is that they see this as a short-term crisis, in which they can find a better deal on an apartment than they have been able to find for several years.
The least depreciation that we have seen in the past month is at the lower end of the market. Studios, small one bedrooms and two-bedroom shares ($1,800 to $4,000) have only been renting for approximately 10% less than at this time last year. The middle end of the market (one-beds and two-beds from $4,000 to $7,000) has continued to be slow. The highest end of the market (apartments with rents of $8,000 and higher) has also continued as before. However, one must note that the middle and higher ends of the market have seen such depreciation during the past two years that we are unlikely to know for a while how a further crisis will affect their value.
If one can predict any trends for the future, two probably will become market mainstays. Advances in remote technology have shown most landlords that they can lease their units to quality tenants without in-person showings or in-person lease signings. Even when we return to some kind of normal, it is likely that many brokers and landlords will continue to do business in this way to a far greater extent than before. However, it is also likely that tenants in all sorts of industries will continue to work from home. As such, they may choose larger apartments to be more comfortable working from home. They may also choose to leave New York altogether, once they discover that there is no longer any need to commute to their Manhattan offices.
What is clear is that New Yorkers who have remained in the five boroughs for many years and have been willing to pay very high rents and very high taxes may wonder now what value they receive for such a financial burden. The psychological effect of quarantine, especially among higher-net-worth tenants, may signal a significant alteration of priorities.