A man enters a building with rental apartments available on August 19, 2020 in New York City.
Eduardo MunozAlvarez | SEE press Corbis News | Getty Images
Apartment rents in Manhattan almost doubled in December, which meant a possible shift 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 amounted to 5,459, 94% more than last year. Earnings accounted for the largest increase in nearly a decade and the third consecutive month of year-on-year lease earnings.
“It’s a baby step in the right direction,” said Jonathan Miller, CEO of assessment and research firm Samuel Miller. “The metrics are still very weak. But at least it shows there is demand.”
The reason for the increase in rents is the continued fall in prices. Median net effective income (or the income that people actually pay, including discounts and incentives) fell 17% in December, to $ 2,800 a month. Landlords offer an average of two months free rent to attract tenants, and many offer more.
Brokers say three groups are driving demand. First, those living in the city use price cuts to switch to larger or new apartments. The second group includes New Yorkers who left in the early days of the pandemic in March or April, but are now returning. The third group includes couples and families who have sold their properties on the outskirts for big price gains and who are testing the city’s waters for the first time, given the best values.
Still, brokers and homeowners say the total recovery of Manhattan real estate is likely to be a long way off. Even with falling prices and rising rents, Manhattan still has a virtually record number of vacant apartments. In December there were 13,718 apartments, more than 2½ times the total last year. The 5.5% vacancy rate is nearly three times the Manhattan historical average, according to Miller.
Many homeowners and buildings also keep vacant apartments off the market for fear of generating even more oversupply. Miller said that “shady inventory” or “managed inventory” means the actual number of empty, unrented apartments in Manhattan probably exceeds 20,000.
“I think we’re in the preseason of recovery,” he said.
Wage gains are driven primarily by wealthier tenants, as high-income workers have largely escaped the economic consequences of the pandemic, while lower-wage workers and service workers have suffered more pain. Leases of three-bedroom apartments, which are rented for an average of $ 8,000 a month, rose 171% in December compared to a year ago, according to the report.
At the same time, effective rents for smaller studios fell 19% and recorded much smaller gains in new leases.
The strength of the high-end, driven in part by the growing stock market, is also shown in the apartment sales market. Although apartment sales overall fell 21% in the fourth quarter, apartment sales at a price above $ 5 million increased 23% compared to the previous year’s quarter.
“Unemployment patterns are reflected,” Miller said. “Lower wage earners have been most affected.”