New York’s Red-Hot Apartment Demand May Have Reached Its Peak, Survey Finds
Asking Rents Have Dipped From All-Time Highs
By: Andria Cheng
Residential brokers in New York say the city’s red-hot apartment demand may have reached its peak. (Getty Images)
As higher interest rates, inflation and worries about a looming recession have soured the moods of both commercial and residential real estate brokers in New York, some of the city’s apartment leasing agents said demand that has driven record-high rents may have finally reached its peak.
In a shift from the second quarter, brokers highlighted some signs of market cooling in the third quarter, according to the Real Estate Board of New York’s latest real estate confidence index report released this week. While these brokers noted continued “robust” demand for apartments, with rents still topping pre-pandemic levels, a few of them suggested that demand has peaked, paving the way for “more material deceleration in rental rate growth,” according to the study.
The “rental market is softening from the summer highs,” a broker said in the REBNY survey. It “will soften even more once all COVID discounts expire in [the first half] of 2023. I’m doubting that landlords can maintain these meteoric prices for much longer with the stock market.”
Other data also points to signs of the New York apartment market reaching its peak. After asking rent per unit reached its all-time record high of $2,985 in the third quarter, that rate has dipped to $2,978 this quarter, according to CoStar data.
In Manhattan, while luxury demand sent net effective average rent in October to a new record high for the eighth time in 10 months, net effective median rent slipped month over month for the third straight time, according to brokerage firm Douglas Elliman’s monthly market report released Thursday and compiled by appraisal firm Miller Samuel. Listing inventory fell annually for the 16th consecutive month.
“No inventory, and still the prices are too high — no concession from owners, and hard to rent for the younger generation,” according to another broker cited in the REBNY study.
Some renters may have turned to boroughs outside of Manhattan, REBNY said in the report.
A case in point, new leases in Manhattan fell by 14.3% from a year earlier in September while they rose 11.6% in Brooklyn, according to the REBNY report, citing Douglas Elliman data.
Broker sentiments in New York, the largest U.S. commercial property market, also serve as a barometer of overall industry attitudes in the United States. The study usually surveys several hundred New York brokers, REBNY has told CoStar News.
On the sales front, the REBNY study also found a “mismatch between seller and buyer expectations” as some owners are pulling properties off the market, which REBNY said creates supply shortages and keeps prices from falling.
Overall, after falling into negative territory in the second quarter for the first time since 2020, residential brokers’ current confidence index declined to negative 17.41 in the third quarter from negative 1.74 in the second quarter, according to REBNY. Nearly half of residential brokers said interest rates were the top concern. The 30-year fixed home mortgage rate, after rising to 6.3% in early September — its highest mark since the fall of 2008, has pushed above 7% by early October, REBNY said.
Commercial brokers’ current confidence index declined to negative 40.58 in the third quarter from negative 37.72 in the second quarter.
While their moods are dampened, brokers seem to betting the negative market variables won’t stick around long. Brokers’ six-month outlook improved from the previous quarter, REBNY said. Commercial brokers’ expectations index improved from negative 34.87 to negative 22.83 while residential brokers’ outlook index inched up from negative 10.07 to negative 5.46.
The results were compiled from brokers being asked to select either a positive, neutral or negative response for a set of questions.