(To read more on the multifamily market, click here.)
NEW YORK CITY-Manhattan landlords can expect to see vacancy rates drop even as they significantly raise rental rates, according to Marcus & Millichap's Apartment Research quarterly report. This landlord market is projected to continue for the next 24 months.
"The [same] rents have been there since 9/11," says Peter Von Der Ahe, director of the National MultiHousing Group with Marcus & Millichap. "So we have five years of pent-up demand."
According to the report, rental rates will continue to rise as they have been earlier in the year, with a 7.5% jump in asking rates and a 7.8% hike in effective rents. By year's end the average asking rent is projected to be $3,412 per month with the effective rents at $3,323 per month. Effective rents in the second quarter were $3,181 per month, a 7.7% hike from the previous year.
But these are just the average increases, Von Der Ahe says in some sectors of Manhattan rents could increase even more dramatically. An apartment that is now being rented for $1,500 a month could be turned around in two weeks with only minimal upgrades and rented for $1,750, according to Von Der Ahe.
Even with the addition of over 5,000 units to the market from the beginning of 2005 to year end 2006, vacancy rates are projected to drop. Marcus & Millichap forecast that Manhattan's vacancy rate will drop 20 basis points this year to 2.8%
The cooling condo crazy, emergence from a demographic trough and the strengthening economy are all factors that will continue to strengthen the apartment market. "During the past five years all these renters have been saying the condo market is going crazy and I could buy an apartment instead of rent," Von Der Ahe said. "But not any more--all those that were leaving the rental market are now flooding back in."
The decrease in the number of 20 to 35-year-olds, considered the renting demographic, also took its toll on the apartment market. But that trough is no longer, according to Von Der Ahe. "We're now in a huge upswing that is coming through the population right now."
The strengthening economy, which will add 33,000 jobs to Manhattan this year, is also aiding the rental market. New York City fell below the national unemployment average for the first time since August 1988 this month, according to a statement from chief economist Stephen Kagann. The city's unemployment rate dropped from 5.1% to 4.5% from August to September this year--a surprising figure according to analysts.
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