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Manhattan’s apartment market remains strong with vacancy of less than 3% at large, market-rate properties and rents climbing steadily, according to a first-quarter Apartment Research Report by Marcus & Millichap. However, the report predicts a more challenging environment for rental housing in the months ahead, as aftershocks in the financial markets may lead to job cuts above and beyond what Wall Street has already experienced.

“Leveraged buyers will remain subdued in the months ahead as conditions in the credit markets stabilize,” says Edward Jordan, regional manager of the Manhattan office of Marcus & Millichap, in a prepared statement. “Well-capitalized private buyers are expected to stay active, however, as will institutions and foreign investors.”

The report notes that “no one knows for certain how Wall Street’s problems will affect demand for rental housing. For now, it is likely that housing demand will be supported by staffing increases in other employment sectors, although growth will not be as strong as in the past couple of years. As a result, vacancy will rise slightly in the quarters ahead, and rent growth will not be quite as substantial as in ‘07, when asking rents advanced more than 8%.”

Across the entire city, employers are expected to create 5,000 jobs during 2008. The figure contrasts with the 44,600 positions that were created in ‘07. In Manhattan, total employment is forecast to expand by 0.1% with the addition of 3,000 new workers, according to the report. “Due to turmoil in the financial markets, though, the potential for a substantial decrease in citywide employment exists,” the report states.

In Manhattan, builders are expected to deliver 1,900 units in large, market-rate complexes this year, up from 1,800 units in 2007. “Multi-family permit issuance will fall off to about 4,000 units in ‘08 as developers purchase fewer project sites and wait for signs of improvement in the mortgage market,” according to the report. Even so, completion of large-scale properties this year will increase supply at a faster pace than projected demand growth. This will lead to an increase of 60 basis points in the vacancy rate to a “still-tight” 2.7%, according to the report.

Asking rents in Manhattan’s larger apartment buildings are forecast to rise 4.4% percent to $3,882 per month, while effective rents will increase by the same percentage to $3,786 per month. The report notes that rents on rent-stabilized units can increase 3% on one-year leases and 5.75 percent on commitments of two years.

On a citywide basis, an investment sales report from PropertyShark found that the median price per sf was $242 for Q1 ’08, down 3.01% from the previous quarter’s figure of $250 and down 5.64% since Q1 ‘07, which had a median price per square foot of $257. “All of the boroughs except Manhattan saw their median price per sf slip from Q4 ‘07 to Q1 ‘08,” according to PropertyShark’s report. “The Bronx, down 7.09%, fell from $189 to $176 and had the greatest price change in this period. However, compared to the first quarter of ‘07, all the boroughs had negative changes through Q1 ‘08, with Queens, down 7.08%, registering the greatest fall.” The report found that the citywide median Q1 sale price of $625,000 was unchanged from Q4 ’07, but down 0.79% year-over-year from Q1 ’07.

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