NYC Apartment Inventory Getting Squeezed

NEW YORK CITY—Despite heady multifamily construction activity, apartment vacancy in New York City is expected to drop by the end of this year to just 2.5%. The tight market is being fueled by heavy demand from tenants who are priced out of the single-family home market.

Marcus & Millichap, in its fourth quarter 2015 Apartment Research Market Report for New York City, states that multifamily construction is heating up in Queens, the Bronx and Staten Island. Citywide, developers will complete 15,000 apartment units this year, a significant increase from the 12,120 new units brought to market a year earlier.

The report, authored by Marcus & Millichap research analyst, research services Aaron Martens, predicts effective apartment rents will rise 1.4% in 2015 to $3,923 per month. Average rents in Brooklyn and Manhattan will outpace the other boroughs.

"Although supply increases will top 15,000 this year, vacancy will decrease, underscoring the immense opportunity in the multifamily sector," the report states. "With average rent growth in the mid-single digits for the past several years, owners have enjoyed total returns well in excess of inflation, which will continue this year."

The report's bullish view on the multifamily market is in line with statistics shared late last month by the New York Building Congress. The construction trades organization in a report of its own stated that New York is in the midst of a building boom for both new commercial and multifamily construction. The Building Congress estimated that 36,850 units of new housing will be produced in 2015, an increase of 16,400 units from 2014. The forecasted number of newly constructed units in 2015 would top the previous peak of 33,150 units produced in 2008.

Strong market drivers as well as abundant available commercial credit at historically low rates are fueling multifamily investment. "Institutional players have been focusing on marquee properties in Manhattan and select neighborhoods in Brooklyn, seeking capital appreciation from the near constant rise in value, while private buyers have moved to value-add strategies in order to generate greater returns," the report notes.

Marcus & Millichap states that due to low occupancy levels, developers have increased the multifamily pipeline in New York City to more than 72,000 rental units with completions scheduled through 2018. More than 29,000 of the units in the pipeline are to be constructed in Brooklyn, while Manhattan will secure more than 25,000 units.