Multifamily Fundamentals Soften

NEW YORK CITY-Wall Street’s ailments have begun to infect the city’s residential market, with apartment prices dipping in Q4 2008 and two reports predicting a rise in the rental vacancy rate this year. The result could be a softening of fundamentals in the formerly ironclad multifamily category, although rental buildings will maintain much of their investment appeal.

“Despite the downside risks to the multi-family market, the local reliance on rental housing is expected to prevent significant revenue declines,” says a report from Marcus & Millichap Real Estate Investment Services. “Additionally, vacancy is forecast to remain in check in popular Manhattan and Brooklyn neighborhoods such as the Upper East Side and Upper West Side, the Village, downtown Brooklyn, and Park Slope as distressed renters take on roommates rather than move out of desirable locations.”

In contrast, Marcus & Millichap cites neighborhoods including Long Island City, Midtown West, the Financial District and southeastern Harlem, “where deliveries will be elevated and the threat of shadow rentals persists.” The report predicts a 130-basis point rise in the vacancy rate this year.