By Veronica Grecu, Associate Editor
New York City flipped places with San Francisco this year and now ranks second in Marcus & Millichap’s 2015 National Apartment Index, though its economy is still thriving and the multifamily sector is performing better than ever.
Similar to 2014, demand for apartments in 2015 continues to be fueled by significant gains in employment—especially by the expansion of well-paid high-tech jobs, which continue to draw new residents in the city. With giants such as Google, Samsung and Facebook expanding their footprint in the city, the tech sector is pushing up hiring and motivating venture capital firms to support tech start-ups in expanding their payrolls. The traditionally robust tourism industry is also expected to create new leisure and hospitality jobs in the city while boosting the construction sector. Marcus & Millichap data predicts that employment will tick up 2.3 percent in 2015, adding 92,500 positions. Compared to the 85,000 jobs created in 2014, hiring is expected to reach a new high this year.
With the price of owner-occupied housing still prohibitive for most new residents, the demand for rental housing is growing. As a result, new projects are being completed at a swift pace. 12,500 new apartments are scheduled to come online in 2015, 10,000 of which will be built in Manhattan and Brooklyn, the city’s best performing submarkets. This marks a 4 percent increase in completions compared to last year, when 12,000 new units came online.
Though developers responded quickly to the demand for new rental spaces, New York City will maintain vacancy rates well under 3 percent this year—one of the lowest rates in the nation, according to Marcus & Millichap. The wave of new units expected to be delivered this year will result in a 40 basis point climb in vacancy, reaching nearly 2.7 percent. The average vacancy rate in 2014 registered a 30-basis point rise.
Effective rents will continue to push up in 2015, gaining 1.4 percent to $4,090 per month and posting the highest rental rate in the country. However, this is a slight decrease in rent growth compared to 2014 when rents rose 1.8 percent.
New York City’s stable economy will to lure international investors who are looking to deploy capital in safe markets. Investors will continue to be active throughout the city, especially in Manhattan, where cap rates are expected to fall below 4 percent. Many deep-pocketed buyers are expected to invest in northern and downtown Brooklyn, looking for Class B/C assets located in transitioning areas.
Charts courtesy of Marcus & Millichap