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As the first quarter of 2024 nears its end, multifamily building owners should closely monitor the shift in lifestyle expectations among renters, the return of concessions, and a plateau in rental pricing. Compounded with easing inflation, potential interest and mortgage rate decreases, and increased inventory, the New York City rental market has begun to cool, far more rapidly than some owners anticipated.

Multifamily building owners must also consider how to cater to the typical short-term renter, as well as forever tenants. This includes the provision of relevant and enticing amenities, expanded services, and concessions to keep up with the competition.

No matter the outcome, agility in a volatile market is the only way to reduce vacancies, maximize occupancy, and improve revenue.

There may not be another city in the country where the question of whether to rent or buy exists as strongly as it does in New York, where the constant churn of tourism, new arrivals, and local pride drives one of the most active rental markets in the world.
According to a recent report from the New York City Comptroller, 69% of New York City households are renters, and about half of those live in rent-regulated units.
While affordable and low-income rental apartments are in constant demand, the appetite for market-rate and luxury home ownership has waned. Enter the “forever renter,” an expanding category of residents who no longer view homeownership as a life-affirming achievement. Rising property costs and a spike in interest rates that make home loans much more expensive compared to previous years are the two most common reasons why this demographic has opted to forego ownership.
These trends are illustrated in a study published by The New York Times that reveals a growing number of millennials living in NYC feel that renting an apartment for the long term is their economic reality versus becoming a homeowner.
It's not all clouds and shadows. Many forever renters view their access to amenities and common spaces as a perk compared to the hassles of maintenance and upkeep associated with homeownership. Some of these renters are likely to re-enter the sales market as interest rates recede, but there may be a segment that has joined the ranks of forever renters and will stay where they are or look for newly constructed, amenity-rich rental buildings.

Rental Pricing Trends | Q4 2023 and Beyond

New York City rental prices and activity in Q4 2023 eased slightly after reaching new heights in the spring and summer.
According to Zillow, the median rent in New York City is $3,394 across 15,622 available units. The two most expensive boroughs in December 2023 were Manhattan and Brooklyn, with median monthly rents at $4,428 and $3,720, respectively, according to data from Corcoran. Median rent in both boroughs experienced month-over-month declines — 1% in Manhattan and 5% in Brooklyn — but year-over-year increases — 5% in Manhattan and 6% in Brooklyn.
While median rent levels remain stable and elevated, leasing activity in these popular destinations has substantially tapered off. In Manhattan, signed leases dropped 34% from October to November. The story in Brooklyn was similar, with month-over-month declines of 32% from October to November and 6% from November to December. The drop-off in activity comes despite active listings being up 43% and 8% year-over-year in Manhattan and Brooklyn, respectively, with listings in Brooklyn hitting their highest level in December since 2020.

Current inventory and a dip in activity could suggest that rents in New York City have finally outpaced demand and will soften as owners compete for prospective renters.

According to The Economist, the monthly cost of a mortgage payment in 2020 was 12% less than the monthly rent payment on a typical two-bedroom apartment nationwide. Fast forward to 2023, and the cost of mortgage payments have doubled while average monthly rent has only increased by around 20%.
Data from Ariel Property Advisors shows that multifamily investment activity in New York City decreased 56% by dollar volume and 24% by transaction volume from Q2 to Q3 2023 due to rising interest rates. The report also indicates that market-rate and that 421a buildings are still a popular investment option and account for 81% of total dollar volume.

In response to easing demand and low turnover, private and institutional multifamily owners now offer more concessions to entice new renters and fill vacant units without lowering listing prices.

According to a December 2023 report from Douglas Elliman, the share of new leases signed with concessions in Manhattan, Brooklyn, and Northwest Queens increased from November to December. Similarly, a recent rental report from StreetEasy noted that, in November 2023, nearly a fifth of all rental listings on the market offered concessions equivalent to at least one month of free rent. The report also highlights that summer 2021 was the last time concessions were so widely available, a time during the pandemic when many residents left New York City.
Owners who are weighing concessions should also consider how macroeconomic forces like inflation and mortgage rates will affect renter, buyer, and seller behaviors. With inflation softening and the Fed expected to cut rates in 2024, Fannie Mae has forecasted that mortgage rates will cool to around 6% by year’s end. Lower rates should turn a segment of current renters into buyers, reducing overall demand for rental units. Additionally, sellers with pre-inflation mortgage rates may continue to sit on their properties and rent them out rather than enter the resale market, further expanding local inventory and competition.
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Contact our New York multifamily rental management team today!

Monday January 29, 2024