A man walks into a building with rental apartments available on August 19, 2020 in New York City.
Eduardo MunozAlvarez | SEE press | Corbis News | Getty Images
Manhattan apartment rentals nearly doubled in December, signaling a possible turnaround in the city’s struggling real estate market.
The number of new leases signed in December jumped to 5,459, up 94% from last year, according to a report by Douglas Elliman and Miller Samuel. The gains marked the largest increase in nearly a decade and the third consecutive month of year-over-year rental gains.
“It’s a small step in the right direction,” said Jonathan Miller, CEO of the Miller Samuel evaluation and research firm. “The measurements are still very weak. But at least it shows that there is a demand.”
The reason for the increase in rents is a continuous drop in prices. Median net effective rents – or the rents people actually pay, including discounts and incentives – fell 17% in December, to $ 2,800 a month. Landlords offer an average of two months’ rent free to attract tenants, and many offer more.
Brokers say three groups are driving demand. First, those who live in the city are taking advantage of the price cuts to upgrade to larger or newer apartments. The second group includes New Yorkers who left at the start of the pandemic in March or April but are now returning. The third group includes couples and families who have sold their suburban properties for big price gains and are testing the city’s waters for the first time, given the best values.
Still, brokers and landlords say a full recovery in Manhattan real estate is likely a long way off. Even with prices falling and rentals increasing, Manhattan still has a near record high number of empty apartments. There were 13,718 apartments listed in December, more than 2.5 times last year’s total. The vacancy rate of 5.5% is nearly three times Manhattan’s historic average, according to Miller.
Many landlords and buildings also keep empty apartments out of the market for fear of creating even more oversupply. Miller said this “shadow inventory” or “managed inventory” means the actual number of empty, unlet apartments in Manhattan is likely over 20,000.
“I think we are in the preseason of the recovery,” he said.
Rental gains are mainly due to wealthier tenants, as high incomes largely escaped the economic fallout of the pandemic, while low-paid and service workers suffered the most. Leases for three-bedroom apartments, which rent an average of $ 8,000 per month, jumped 171% in December from a year ago, according to the report.
At the same time, the effective rents of the smaller studios fell by 19% and saw much smaller increases in new leases.
The strength of the high-end segment, driven in part by the soaring stock market, is also evident in the apartment sales market. While overall apartment sales fell 21% in the fourth quarter, apartment sales valued at over $ 5 million rose 23% from the previous year’s quarter.
âThis reflects trends in unemployment,â Miller said. âThe lowest paid workers have been hit the hardest. “