There is no doubt that vacancy rates among residential rentals in New York are increasing to a level that we have not seen for more than 10 years. Typical turnover rates in Manhattan buildings have risen from their typical 25% to 30% to what may be as much as 70% in certain neighborhoods. Concessions have risen to the same level as the recession of 2009-2011. Net-effective rates on new leases are likely to be signed at 20% less than last year at this time.
Of course, not all price ranges have suffered equal depreciation. Two-bedroom shares in Manhattan have been hit the hardest of any inventory because of the quarantine. I represent several buildings in which the turnover rate for such units has been as high as 80%. Many roommates during the past few months have found that they no longer wish to live with the same person with whom they had shared a living space for several years. Months of being cramped together in a small space working remotely have driven such tenants to seek their own studio and one-bedroom apartments instead.
It is for this reason that, so far, small one-bedrooms and studios in Manhattan have suffered far less vacancy than the two-bedroom market. Turnover for such units in my own buildings has been only between 50% and 60%. This is still nearly twice the typical turnover rate and is uncomfortably similar to the vacancy rates these buildings experienced during the recession of 2008-2010. However, with one or two concessions on leases, these units are moving, and leases are being signed. Landlords who own multifamily properties with small units should be able to maintain their rent rolls without more than a 10% loss on face rents.
The higher ends of the market are also seeing a similar amount of concessions. Leases on such units are being signed, for the most part, with landlords paying broker fees and offering as many three additional free months’ rent. The concessions are a particular necessity in this price range because of the losses over the past five years. Three- to four-bedroom apartments, which in 2015 might have rented for as much as $15,000, had experienced significant reductions before COVID-19. For the tenants who have been under quarantine with children for many months, a flight to the suburbs has begun to look quite appealing. It is particularly appealing when one considers that many tenants in such units are working remotely and have little need to be physically in New York.
The primary difference between the recession of 2008-2010 and today is that during those years, there were massive layoffs on Wall Street and throughout the Fortune 500 companies. The subsidiary industries to those companies, such as law firms, PR firms and marketing firms suffered. Now, by contrast, the vast majority of the banks and Fortune 500 companies have retained their staffs.
As with the office leasing market, it is still very unclear how working remotely will affect future apartment searches. It may well be that tenants who work from home will be willing to pay higher rents for a more comfortable work environment. It may be that many who can work remotely will leave New York altogether, since they will need only to be in their offices from time to time. Perhaps some companies, in the face of a larger pool of remote employees, will severely reduce their New York footprint. If this happens, there will be far more remote employees throughout the country who will no longer compete for New York apartments.
Much will depend on whether we have a second outbreak of COVID-19 in the late fall and early winter. Much will also depend on whether New York continues to fall into older patterns of crime that, up until very recently, one thought were relics of a bygone era. One simply does not know how far away we are from a return to indoor dining, sporting events and Broadway shows. However, what is absolutely certain is that, for now, those who have chosen to not renew their leases in New York have not, for the most part, done so from any great financial stress. For now, they simply no longer wish to live in a city which offers so little of its characteristic attributes and for which the future, as of now, looks so potentially bleak.
Adam Frisch
Lee and Associates NYC Residential
845 Third Avenue, Fourth floor
New York, NY 10022
917-279-5308
afrisch@lee-associates.com
leeresidentialnyc.com
