MARKET SNAPSHOT: Vacancy in New York Remains Tight, Despite Increasing Unemployment

By Erika Schnitzer, Associate Editor New York—New York’s reliance on rental housing is expected to prevent significant revenue declines, according to the 2009 National Apartment Report by Marcus & Millichap.However, due to the increasing number of job cuts that have taken place in the last 60 days, as well as those expected to occur within the next six months, Peter Von Der Ahe, vice president-investments and director of the Manhattan office of Marcus & Millichap’s National Multi Housing Group, predicts that occupancy rates will be greatly affected. “My biggest question is, how long is the time delay between the event and the effects on property operations, and how will we know when we’re feeling it all?”Vacancy—which is usually around 2 percent in New York—is expected to increase by 130 basis points, to 4.7 percent. However, Marcus & Millichap forecasts that vacancy will remain in check in popular neighborhoods, including the Upper East Side, the Upper West Side, the Village and Brooklyn’s Park Slope. Asking and effective rents are expected to increase 2.1 percent and 1.5 percent, respectively.As a result, says Von Der Ahe, “I think you’ll see people moving out of Manhattan and people on the higher end of the boroughs move back in.” He also notes that vacancy rates in the outer boroughs are approximately 2 percent higher than they are in Manhattan.On the supply side, the market is expected to see approximately 2,500 market-rate units delivered this year, compared with 1,997 added to the stock in 2008. Von Der Ahe tells MHN, however, that the shadow market does not have a tremendous effect on the New York market—particularly Manhattan—due to the large number of co-ops, which are a major source of ownership housing and don’t typically have the dynamic that would create such a market. Additionally, he says, condos in New York typically don’t work as rentals unless the banks become involved.Transaction velocity is anticipated to remain modest, though Von Der Ahe notes that there is a tremendous disconnect between buyers and sellers. “There are buyers out there—a large majority making bids based on where they think the market is going to be,” he says. “If they think the market is going to go down in six months, they give the price of what they think it will be–today. You have a 20 to 25 percent disconnect between buyers and sellers.”He adds, “The most normalized market right now is the Bronx, because buyers and sellers are closest in terms of their opinions of where prices are. The gap is the furthest right now in Manhattan.”Von Der Ahe says that investors with a long-term outlook will fare better within the next 24 months as “incredible buying opportunities” present themselves to experienced local investors.In addition, New York dropped six places, down to No. 9, in Marcus & Millichap’s National Apartment Index (NAI) Rank, an analysis that ranks 43 apartment markets based on a series of 12-month forward-looking supply and demand indicators.(Click hereto read last week’s Market Snapshot on Hartford, Conn.)