Trend Report: Multifamily Rental Leasing & Investment Activity in New York City
FirstService Residential is the only property management company in New York that has the requisite experience, knowledge and resources to help owners overcome the economic challenges they are facing today. Contact us today to learn more about our multifamily rental management services.
The emergence of several headwinds has dampened early optimism, however, and multifamily investors and property owners will need to account for rising interest rates, new local laws, ongoing volatility, inflationary pressure, and worries about an economic slowdown. Though economic uncertainty will continue to impact investment and property ownership decisions, opportunities in the multifamily rental property sector remain.
Moving forward, the goal of individual and institutional investors and owners will be to minimize the influence of near-term challenges, while maximizing long-term stability and growth.
The Rental Market Remains HotInflationary pressure, low housing supply, and tenant demand have all contributed to rising prices and the trend looks set to continue in the near future. According to Douglas Elliman's May 2022 multifamily report on rental properties in Manhattan, Queens and Brooklyn, the median rent in Manhattan rose 25.2% year-over-year, reaching $4,000 for the first time, with average rent hitting just under $5,000 per month. New lease signings in May were up 9.8% over the previous month and the vacancy rate stayed below 2% for the sixth consecutive month.
As a result of increased demand and finite supply, concessions available for new leases fell to 15.3%, the lowest it’s been since 2016.
While these market conditions are extremely favorable to landlords and building owners, the real estate sector is historically cyclical and will not remain at peak in perpetuity. To maintain low vacancy rates when tenant demands and conditions soften, building owners should consider ways to maintain a competitive edge against similar properties and reduce annual operating costs, which for many buildings is also on the rise:
- Cost-saving energy solutions
- Insurance policies with lower annual premiums, better terms and increased coverage limits
- Capital improvement projects that increase property value and enhance resident lifestyle
- Condominium-style amenities that appeal to evolving tenant preferences
Multifamily Investment in the Time of Rising Interest Rates & InflationA first quarter investment report from Ariel Property Advisors, a leading commercial real estate advisory company, showed strong investment activity in multifamily rental properties across all five boroughs. Black Spruce’s purchase of The American Copper Buildings in Midtown East, valued at $837 million, was the largest sale in the first quarter and accounted for 29% of total building transactions. Overall sales across the city hit $2.87 billion in this same period.
Today, persistent inflation and corresponding mortgage rate increases have cooled the appetite of some investors who are waiting to see how policy makers and the market respond. The Federal Reserve has already approved two interest rate increases and has hinted at additional increases in the future.
Market-rate and luxury multifamily buildings are proving resistant to inflation-driven hesitation as private and institutional investors look to capitalize on the strong rental market and establish stable sources of cash flow. Accurate forecasting and assessment to determine which properties can offer consistent near-term revenue and long-term growth potential will be particularly vital during the early stages of the acquisition process.
Elections & Local LawsIndividual and institutional owners will also need to keep track of upcoming elections and the ongoing impacts of local laws. In November, New York will elect new city, state, and federal representatives. Incoming city and state governments may look to change current laws, many of which will impact the multifamily rental property sector and real estate overall.
The New York City rental market is still adapting to recently passed laws like the Housing Stability and Tenant Protection Act of 2019. More recently, the decision to allow increases on rent-stabilized units and lapse of the 421a tax break has prompted a recalibration of investment activity for new multifamily developments. Additionally, the city’s push to reduce its carbon footprint has led to new regulations that ban natural gas for new developments, as well as Local Law 97 which sets strict carbon emissions limits for a majority of multifamily residential properties.
Staying apprised of current and potential laws can help family-owned portfolios, new development investors, and multifamily property owners better prepare for the future. To adapt to the evolving regulatory landscape and remain energy compliant, owners need to ensure they use qualified budgetary analysis services and partner with a leading energy management and advisory:
As the premier rental property management group in the nation, FirstService Residential possesses the expertise, national buying power, and operational support to help developers, investors and property owners navigate today’s challenges and prepare for the future.FirstService Residential is the only property management company in New York that has the requisite experience, knowledge, and scale to help owners overcome the economic challenges they are facing today. With consistent inflation and rising interest rates, the need for accurate forecasting, calibrated budgeting, cost-efficient value-adds, and optimized cash flow is more important now than ever before.
Whether working with an institutional investor, a family-owned portfolio, or a development company, FirstService Residential knows how to protect your bottom line. We are regularly asked to consult during the acquisition process because investors and owners know that our financial expertise is backed by decades of success. We deliver a high degree of comparable budget data sets to assess a cost-contained and diligent approach to new development or steady-state assets. When you work with us, you’re working with proven innovators and the most established name in luxury rental property management.
We’ve helped building owners save millions in annual costs and services:
- Full-Service Accounting | A dedicated financial analyst is assigned to each building or portfolio to optimize your budget and eliminate unnecessary costs
- In-House Compliance Department | Tracks violations and maintains established relationships with industry professionals to handle disputes and reduce potential fines
- National Energy Aggregation Program | Our clients have saved millions of dollars in annual utilities through our energy aggregation program, one of the country’s largest for multifamily residential buildings
- Rental Data Management & Accounting Platforms | Automated systems to make financial reporting more accurate, efficient and on time
- Technology Investments for Process Automation | Automated lease renewal processes and improved data management ensure faster rent collection and deposit processing.
- Construction Project Management | During tenant turnover or rental conversion, we determine the most cost-efficient renovation and cosmetic upgrades for owners to re-introduce the units at the highest market values
- National Scale & Buying Power | Our owners receive the highest quality vendor services at the most competitive rates given the size and breadth of our management portfolio
For 40 years, we have guided a broad range of institutional and family-owned portfolios and individual building owners with our tailored management approach to significantly increase revenue, maximize occupancy and retention and streamline operations.
Click here to learn more about our tailored services for multifamily building owners.