NYC Apartments Look Poised for 2021 Rebound
While upper-level apartments are still challenged as their residents are more likely to be working remotely and more supply is being delivered, Class B and C apartments are poised for a recovery.
After suffering through an exodus of renters and effective rates taking a two-year step back in 2020, New York’s apartment market is poised for a rebound as businesses begin to reopen and rehire.
While upper-level apartments are still challenged as their residents are more likely to be working remotely and more supply is being delivered, Class B and C apartments are poised for a recovery, according to Marcus & Millichap. Those properties are less exposed to new supply and have recorded more positive fundamentals so far through the pandemic.
Still, Class C residents have been more likely to deal with work stoppages and M&M says vacancy could rise when renter assistance programs and eviction moratoriums expire. Class B, which has renters that are still working but priced out of Class A, may be in the best position.
Driving growth will be the 180,000 new jobs that M&M expects to expand the employment base by 4.4% in 2021 to close within 9 percent of the pre-pandemic level. Additionally, the pace of construction should moderate following the 2020 slowdown with 17,947 units completed (with the temporary closure of some construction sites). Most of the 15,000 new deliveries will be in Brooklyn and Queens.
As the market slowly recovers, vacancy should increase 60 basis points, with the overall rate hitting 4.3% by the end of 2021. In 2020, vacancies increased 170 basis points year over year. Overall, 16,000 apartments were vacated in 2020, which pushed the vacancy rate up to a more than 20-year high of 3.7 percent. In Williamsburg-Greenpoint-Navy Yard, Downtown Brooklyn and Midtown South, vacancy rose by more than 300 basis points.
Overall, rents will decrease 1.2%, pulled down by softness in Class A. Still, Class B and C units should benefit from stabilizing renter demand. Overall, M&M expects an overall metro average effective rent of $2,636 per unit this year.
In 2020, rents fell 3.3% in the average effective rent year over year. Class A’s 8.4 percent year-over-year drop drove the overall average effective rate down to $2,668 per unit. Class B and C rents fell 3.1 percent and 0.6 percent, respectively, in 2020.
Other reports show a slight improvement in the New York apartment market. Apartment List says rents in New York City continued to fall in February, down 0.1%. However, 0.1% is a significant improvement from the average monthly decline of 2.4% since April 2020.
Overall, apartment transactions dropped 30% compared to 2020 compared with the year before. In Class A, sales velocity dropped by more than 50%. With a different mix of properties changing hands, the average sale price fell 0.3% to $328,500 per unit.