A pointy drop in condo costs in Manhattan is attracting youthful tenants
Sign advertising apartments for rent on the Upper East Side of New York City.
Adam Jeffery | CNBC
Manhattan real estate may be around the corner as new rentals have risen for the first time in over a year and sales activity has spiked after the collapse of Covid.
A sharp drop in rental rates appears to be attracting new, younger renters back to the city, even as office workers and wealthy New Yorkers stay in the suburbs and rural resorts. Manhattan new rentals rose 33% in October, the best October in 12 years, according to a report by Douglas Elliman and Miller Samuel.
Typical apartment rent including discounts, or median effective net rent, fell 19% year over year to $ 2,868 – a record drop. Smaller apartments, which are aimed at younger tenants, fell the most. Studio apartment prices fell 21% and one-bedroom apartment prices fell 19%.
"I think we are at a turning point where the consumer is returning to the city," said Jonathan Miller, Miller Samuel CEO. "Sellers are slowly recalibrating what the values are, and the lower prices are bringing in more people."
Manhattan real estate still faces major challenges. In October there were 16,145 unlet apartments – an all-time high. The vacancy rate, which is typically 2%, is now over 6%. All of these empty apartments mean that landlords need to keep cutting rents and providing incentives to lure people back to town.
On average, landlords offer free rentals for more than two months, and according to the report, over 60% of new leases in October had some form of incentive or discount. The apartments have been on the market for an average of 33 days, compared to 26 days a year ago.
But even the sales market in Manhattan is starting to stir after a gloomy spring and summer. Brokers say the election and recent news about a vaccine have sparked an increase in screenings, inquiries and interest from buyers. According to Garrett Derderian, director of market intelligence at brokerage firm Serhant, sales contracts rose 21% between November 1 and 10.
While prices in the sell market haven't fallen nearly as much as the rental market, realtors say even a 5% to 10% discount on sales prices is enough to attract buyers who have been looking for a better entry into Manhattan real estate for years waiting .
"The market may now have reached a tipping point where the uncertainty surrounding the presidential election is behind us and a possible vaccine is in sight," Derderian said. "Many buyers who have watched from the sidelines as prices fall and negotiations rise seem ready to jump in, and many have understood that once a vaccine is found, the market will change again has been."
Manhattan could have a tough winter ahead as more virus cases emerge and companies prefer to keep most of their employees out. New York City and New York State face high unemployment and billions in budget gaps that need to be filled with tax increases, service cuts, or both – all of which could make the city less attractive to shoppers.
And with the average one-bedroom apartment rental price still over $ 3,200 – more than double the national average – Manhattan is still far from affordable for many young renters. However, experts say the October hikes could begin a long, slow rebound for the country's largest real estate market.
"A lot has to happen for New York to come back," Miller said. "It will be a multi-year process."