Posted by on September 15, 2017 12:10 am
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Categories: Business China Corporate Leverage Douglas Elliman Economy homelessness Housing Prices Law Lease Manhattan Morgan Stanley new york city Real estate Structure

Since the late 1990s, Manhattan real estate has become one of the premier destinations for foreigners – particularly wealthy Russian and Chinese businessmen – looking to stash their money offshore, helping to transform once-derelict neighborhoods like Soho into trendy hubs for the global elite, while sending housing prices throughout the city rocketing higher, putting the American ideal of homeownership out of reach for millions of middle-class New Yorkers.

But since the beginning of the year, untenably high prices, combined with an expected pullback in foreign investment have dramatically changed the outlook for both commercial and residential real estate in the city. To wit, in research published last month, Morgan Stanley forecast that China’s latest crackdown on capital outflows and corporate leverage would hammer NYC’s commercial real-estate market, leading to an 84% drop in overseas property investment by Chinese corporations during 2017, and another 18% in 2018, potentially resulting in a sharp decline in prices.

And now, the earliest signs of a similar shakeout in residential real-estate are beginning to emerge. As Bloomberg reports, something unusual happened in New York’s residential market last month: Even as the number of newly signed leases rose to an all-time high, the vacancy rate for apartments in the borough climbed – meaning that, even after offering renters tantalizing concessions, landlords struggled to offload all of the newly available supply.

This amounted to a boon for renters, who whittled an average of 2% off their asking rents in August. Landlords also added concessions like a free months’ rent on 24% of new agreements, double the share from a year earlier, Miller Samuel and Douglas Elliman said.

Ultimately, they signed 12% more leases than during the same period a year earlier, helping to keep prices stable – for now, at least.  The median Manhattan rent, after concessions were subtracted, was $3,377 last month, up 0.5 percent from August 2016.”

Still, the vacancy rate climbed to 2.27% from 2.14% a year earlier, the first annual increase since February. This problem isn’t confined to residential real-estate. As we noted back in May, commercial landlords are having similar difficulties finding tenants. And with ever more housing units expected to hit the market across the five boroughs next year, the problem is poised to worsen.

In another troubling sign for Manhattan real-estate developers, rents in August declined in almost every Manhattan neighborhood. And while the number of signed co-op contracts climbed 13% from last year, condo sales dropped 11% versus August 2016.

Rent declines were particularly steep in the borough’s trendiest neighborhoods. In Soho and Tribeca, the borough’s costliest neighborhoods for rentals, the median rent was $5,100, down 15% from a year earlier. Upper West Side rents fell 2.8% to $3,698, while leasing costs in the West Village dropped 3.8% to $3,850.

And as the city’s postcrisis construction boom continues, Bloomberg, citing a survey by Miller Samuel and Douglas Elliman, noted that Manhattan had 7,497 apartments listed for rent at the end of August, or 31% more than the monthly average since they started keeping the data in January 2008.

“It really does show just how much inventory there is out there,” said Hal Gavzie, who oversees leasing at Douglas Elliman. “Yes, we have so many leases being signed – and yet, you still have so many options for customers out there.”

Or as another NYC real-estate maven put it…

“We’re going to see prices come down a bit as these landlords get concerned about filling the vacancies before the winter,” Gavzie said. “Nobody wants their apartments vacant in November.”

Of course, while these developments might make landlords nervous, they carry a massive benefit for the city’s poorest and most vulnerable residents. As we noted last month, fluctuations in the size of New York City’s homeless population are incredibly sensitive to real-estate prices. A 5% increase in the average residential real-estate price in New York City can cause the homeless population to climb by 3.9%.

And after the homeless population climbed by an unprecedented 40% over the past year, perhaps this is the solution for New York’s “homelessness problem” that Mayor Bill de Blasio is looking for.  

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