MF Vacancy Rates in NYC Rise to 2% in November, Predicted to Climb to 4.7% in 2009

By Anuradha Kher, Online News EditorNew York–Following years of robust growth, the upheaval on Wall Street will soften fundamentals in the New York City apartment market, according to Marcus and Millichap’s recently released 2009 market forecast. Vacancy is expected to climb 130 basis points to a still-tight 4.7 percent and asking rents in large, market-rate communities are forecast to advance 2.1 percent in 2009 to $3,006 per month, while effective rents gain 1.5 percent to $2,906 per month, according to the report. Despite the downside risks to the multifamily market due to a large number of job losses, the local reliance on rental housing is expected to prevent significant revenue declines. Additionally, vacancy is forecast to remain in check in popular Manhattan and Brooklyn neighborhoods such as the Upper East Side and Upper West Side, the Village, downtown Brooklyn, and Park Slope as distressed renters take on roommates rather than move out of desirable locations, the report says. Meanwhile, brokers and building managers are pointing to a rise in vacancy rates for the months of November 2008, which are likely to continue into December.Vacancy rates for Manhattan apartments for November stood at 2 percent as compared to 1.4 percent year-to-date, according to one of the largest New York City brokerage firms, Citihabitats.According to Citihabitats, rents have adjusted anywhere between 5 and 15 percent, depending on the building. Through October and November, rents saw a 5 percent drop for studios and a 2 percent drop for one-bedroom units, while three-bedroom units stayed flat. Compared to a year ago, Manhattan studio rents are 6 percent lower, and one- and two-bedroom units are 4 percent lower.“This time of the year, whether it’s a good economy or a bad one, the rental market slows down,” Gary Milan, president of Citithabitats, tells MHN. “There is less demand [end of year] and prices typically go down as vacancy rates go up. Obviously, with the current situation, there is added pressure on vacancy rates and rents, with potential renters being conservative.”“But that doesn’t mean there isn’t good volume being generated. During October and November, there was still a lot of interest and this was partly because fewer people are buying,” he adds.According to Milan, this is a good time to rent apartments. “The pace has slowed down and property owners are giving several incentives, such as a month free or partial payment of broker’s fees. The incentives are not unusual for this time of the year, but this year, many more buildings are providing them. Of course, it all depends on the type of building. If it’s a large building with a lot of units to fill, the building management feels the pressure and tends to provide more incentives,” Milan explains.As far as 2009 is concerned, he says, depending on the vacancy rates in 2009, and demand level, prices will have to adjust themselves. Building managers will have to keep an eye on the rents charged by competition and rents will have to reflect demand. According to the Marcus and Millichap report, while local transaction velocity will remain modest in 2009, the buyer pool should change significantly. Experienced New York property owners who have waited on the sidelines for the froth in the investment market to dissipate are poised to re-enter the market. Sovereign wealth and opportunistic investment funds are also expected to increase their presence this year as economic and financing issues provide easier entry for buyers with cash, according to the report.More findings from the 2009 Market Outlook:2009 NAI Rank: 9, Down 6 Places. Deep job losses in the financial sector drove New York City down six places in this year’s ranking.Employment Forecast: Citywide, employment is expected to contract by 94,000 positions, or 2.6 percent, in 2009.Construction Forecast: Builders are projected to add roughly 2,500 market-rate units to inventory this year. In 2008, 1,997 units were brought online.Vacancy Forecast: As employers trim payrolls in 2009, vacancy is expected to climb 130 basis points to a still-tight 4.7 percent.Rent Forecast: In large, market-rate complexes, asking rents are forecast to advance 2.1 percent this year to $3,006 per month, while effective rents gain 1.5 percent to $2,906 per month.Investment Forecast: Economic and capital market struggles will change the buyer makeup in New York City, with liquid, experienced local investors playing a more significant role than in recent years. Acquisition activity will be conservative and based on location and steady returns. Additionally, the fairly predictable revenues of rentstabilized housing will provide investors with a means to hedge the risks to cash flows.