NEW YORK CITY—Neither buyers nor sellers appear to be deterred by the rapid pace of multifamily development here, Marcus & Millichap reports in its third-quarter overview of the New York City apartment market. MMI is predicting that for-sale listings will remain elevated through year's end, even as 2015 will also see builders deliver the highest number of units in more than a decade.

Nor will the development pipeline empty out anytime soon. “The extremely tight operations in the five boroughs have led developers to expand the pipeline of multifamily projects to more than 46,800 rentals with delivery set through 2018,” according to MMI's report. “Builders are primarily focused on New York and Kings counties, but activity in Queens County picked up dramatically as real estate prices swelled during the year.” The new supply will cause a 60-basis point increase in vacancy by year's end, bringing it to a still-low 2.5%.

Meanwhile, sales velocity is up more than 50% from the year prior, thanks in part to the expanded availability of product, “providing opportunities to investors seeking multifamily assets in the metro,” the report states. More than two-thirds of that volume was in Manhattan, with Brooklyn accounting for most of the rest. However, sales activity in the Bronx is more than double last year's.

Historically low interest rates, and the prospect of an increase in those rates as early as this fall, are motivating investors and sellers alike. As owners evaluate opportunities to refinance their properties at attractive terms, many are choosing to sell “in order to diversify portfolios or for business reasons related to pre-determined profit goals,” MMI's report says. “This process has led to a surge in trading as market participants ponder a rising rate environment for the first time in nearly a decade.”

Against this backdrop, MMI reports that buyers have gotten aggressive in their bidding, accelerating increases in per-square-foot pricing while contracting first-year yields to the mid-4% range. “While strength has been broad-based, investors have shown a willingness to pay up for the highest-quality assets, with the average transaction price soaring in Manhattan and Brooklyn,” the report states. It foresees “additional deterioration in cap rates and ascension in prices per square foot” as the year winds down.