Manhattan Rental Rates to Reach Record High in 2011
- May 06, 2011
May 4, 2011
By Barbra Murray, Contributing Editor
New York City is frequently ahead of the game in this country, and presently such is the case with its apartment market. Not only has the city rebounded, it has come back with a vengeance, as market-rate rents in Manhattan are on track to reach an all-time high this year, according to Marcus & Millichap Real Estate Investment Services’ apartment research market outlook.
Last year was good for the Manhattan apartment sector, but that was just the beginning. This year has gotten off to an even better start. In the first quarter of 2011, effective asking rents reached a monthly $3,487, marking a notable 5.6 percent year-over-year increase. The factors that triggered the increase are the same ones that continue to push rates to new heights. Jobs, jobs, jobs.
As many businesses shake off their economic apprehensions and commence adding full-time jobs–as opposed to temporary or contract positions–the resulting increase in white-collar job growth will expand demand, and therefore, prices, especially for modern full-service properties, as per the report. Businesses occupying office space in the city “will post the largest absolute gain in payrolls in more than a decade during 2011 as Wall Street operations rebound, fueled by record profits at large corporations.”
What a difference a year makes.
“Last year, owners were paying rental broker fees and we saw that burn off and we saw concessions burn off, too,” Peter Von Der Ahe, vice president of investments with Marcus & Millichap, told CPE. Manhattan has made a comeback.
“We are kind of back where we were. The market has been improving since last year, so the fact that it’s still improving is no surprise, but the pace of it is.”
With employment on the upswing, demand will continue to rise, and will likely force the average vacancy rate down 50 basis points to just 3.3 percent and push effective rents up 6.6 percent to $3,672 per month. “During the economic downturn, we had very little supply come on the market in terms of new rental apartments,” he said. “It takes apartment projects about two years to come online, so we’ll have a couple of years where there is no new product coming in the rental market. We’ll have constrained supply.”
And investors could not be more keen on the Manhattan apartment sector. “We’ve seen a decent amount of new investors, both domestic and foreign, who are interested in putting money to work in the market.”
There are a few drivers behind investors’ push to get a piece of the Big Apple’s apartment offerings. “First of all, people always want to buy multifamily in New York because it’s considered a very low-risk market and there is always potential for a big upside,” Von Der Ahe noted. “Also, financing rates are extremely low and the type of asset banks want to lend on is multifamily. And, in general, the market is of the opinion that rents are off the bottom and are going to continue to rise, so there’s an impetus to make purchases before the anticipated increase in rents. Investors just love this market.”