A man enters a rented apartment building in New York City on August 19, 2020.
Eduardo MunozAlvarez | View News | Corbis News | Getty Images
Apartment rents in Manhattan nearly doubled in December, a sign that the city’s troubled real estate market may turn around.
According to a report by Douglas Elliman and Miller Samuel, the number of new leases signed in December jumped to 5,459, a 94% increase from last year. Income is the largest increase in the past decade, and it is also the third consecutive month of growth in rental income.
“This is the first step in the right direction,”
The reason for the increase in rents is the continued decline in prices. The median net effective rent (or the rent actually paid by people, including discounts and incentives) fell by 17% in December to $2,800 per month. On average, landlords offer two months of free rent to attract tenants, many of whom offer more rent.
The broker said that the three major groups are driving demand. First, those who live in cities are taking advantage of price cuts to upgrade to larger or newer apartments. The second category includes New Yorkers who left at the beginning of the pandemic in March or April but return now. The third group includes couples and families. They sold their property in the suburbs at a higher price and considered better value. This is the first water test in the city.
However, brokers and landlords say that a full recovery of Manhattan real estate may still be a long way away. Even with falling prices and rising rents, the number of vacant apartments in Manhattan is still close to records. There were 13,718 apartments on the market in December, 2.5 times the total number of last year. Miller said the vacancy rate was 5.5%, almost three times the historical average of Manhattan.
Many landlords and buildings also shut out vacant apartments to avoid oversupply. Miller said that this “shadow inventory” or “managed inventory” means that Manhattan is vacant, and the true number of unleased apartments may exceed 20,000.
He said: “I think we are in the season of recovery.”
Rent increases are mainly driven by wealthier renters, as high-income earners have largely avoided the economic impact of the pandemic, while low-paid workers and service workers have suffered the most. The report stated that the average monthly rent for a three-bedroom apartment was US$8,000, a 171% increase in December compared with the same period last year.
At the same time, the effective rent of the smallest one-bedroom apartment fell by 19%, while the gains from new leases were much smaller.
The power of the high-end, partly driven by the soaring stock market, is also showing up in the apartment sales market. Although overall apartment sales fell by 21% in the fourth quarter, sales of apartments priced at more than $5 million increased 23% from the same period last year.
Miller said: “It reflects the pattern of unemployment.” “Low-income people are hit harder.”