Summary: Has the bubble in New York City real estate been fully reflated and is about to burst? The highest rental apartment vacancy rate in 9-years coupled with a construction boom and concessions being offered to attract tenants suggests that the answer may be yes!
‘Manhattan Rental Apartment Vacancies Hit A 9-Year High! (Video)’
This sparks the question of whether a tipping point in the monthly asking price for Manhattan rental apartments may have finally been reached?
With an undergraduate degree in economics earned back in the 1980’s, I am going to assume that the theory hasn’t changed much since then. That said here are some basics…
Law of supply and demand:
Supply: New Manhattan rental apartments being brought to the market as the construction boom continues coupled with the price of existing and new rental units rising in an almost straight-line (post-financial crisis excepted). According to theory this will result in more construction and more rental units.
Demand: And, at the same time, this boom in building and rising prices has occurred in concert with an almost insatiable demand for units, even as more occupants may be required to pay the monthly nut.
Can this trend continue? To recap…
Law of supply says that developers will continue to develop as prices rise.
Law of demand says that potential renters may begin to look elsewhere as the prices rise.
The Reality: Given the chart below of historical rental prices in Manhattan and the statistic that vacancies have reached a 9-year high, anecdotally it seems that a tipping point may have finally been reached.
What are the experts saying about the state of the Manhattan apartment rental market?
‘Apartment vacancies in Manhattan are the highest they’ve been in nine years, according to a report released Thursday by Douglas Elliman.
The vacancy rate hit nearly 2.9 percent in November, up from 2.3 percent a year ago, the report found.
Landlords, in response, have been offering more concessions, like a month’s free rent or the owner paying the broker’s fee, so they don’t have to lower rents.
The share of new rental transactions with concessions rose to 13.5 percent — nearly three times as much as the 4.8 percent a year ago, the Elliman report noted.
“Rents are still rising,” said real estate expert Jonathan Miller, who wrote the Elliman report. “A lot of that is because landlords are trying to keep up face rent while keeping vacancy down.” (Source)
How will it all end? Using history as a guide the one place that you don’t want to be in a game of musical chairs is the last one standing when the music, as it always does, stops playing!
When that will be in this case, is anyones guess!