NYC Multifamily Vacancy Rate Hovers at Two-Decade Low

Remember when apartment renters were allegedly fleeing urban areas/? New York City just marked its third consecutive quarter of 1.8 percent vacancy at the end of June, maintaining a two-decade low in this metric, Marcus & Millichap reported.

The mean effective rent in NYC will reach $2,870 per month, nearly 6 percent above the 2019 rate. Nearly every other market in the US has seen spikes of double-digits for the past several years, and by as much as 40% in some markets.

But national rent growth has finally slowed, if not deteriorating, according to CoStar.

Availability in Class B and C units is at multidecade lows, however, the Class A rate jumped 50 basis points last quarter, Marcus & Millichap reported.

Concurrently, supply growth is continuing at an annual pace exceeding 20,000 units, keeping overall availability from tightening further.

NYC Offices Not Ripe for Housing Conversions

Marcus & Millichap reported that a state housing bill recently signed into law will ease the permitting process for hotel-to-multifamily redevelopment by allowing converted properties to keep current certificates of occupancy.

The bill also allocated $200 million in state funding for adaptive reuse undertakings, suggesting these projects could account for a larger share of the metro’s active pipeline moving forward.

However, a Moody’s report from Q2 showed that office-to-apartment conversions aren’t viable for 97% of NYC office buildings.

“NYC is a metro with offices at-risk of long-term disruption from remote working, where demand (and prices and rents) for multifamily properties may be likely to exceed that of some offices,” according to the report.

Only 35 of the nearly 1,100 NYC office buildings Moody’s tracks “would meet what we consider characteristics of potentially viable apartment conversions, and the vast majority of those are class B or C offices,” Moody’s said.

‘Big Apple’ Still Faces an Affordability Crisis

Victor Rodriguez, Director of Market Analytics at CoStar Group, tells GlobeSt.com that during the past year, he’s seen extremely tight vacancies paving the way for robust rent growth, with rents quickly exceeding their pre-pandemic total across New York City.

“While the construction pipeline for market-rate apartments remains active, demand for these units is so robust that it has done little to curb the Big Apple’s affordability crisis,” Rodriguez said.

“While easing the conversion process may motivate developers to build more affordable housing, it should be noted that owners may be less willing to sell now that hotel demand in New York inches closer to pre-pandemic levels and the degree of uncertainty surrounding the hospitality sector has considerably lessened since the start of the year.”

NYC Needs an ‘Uptick in Supply’

Ran Eliasaf, founder and managing partner at Northwind Group, tells GlobeSt.com that NYC multifamily vacancy has remained steady at historic lows of 1.8% for the past three quarters as rents have continued to rise.

“Despite economic headwinds, we believe demand for NYC rentals will remain robust,” Eliasaf said. “NYC is uniquely positioned to withstand economic uncertainty due to its strong market dynamics. That being said, for the multifamily market to cool, there must be a significant uptick in supply.

He said that one way the city can achieve this is by encouraging more developers to take on office/hotel to multifamily conversion projects.

“While a good idea in theory, conversion projects can be very expensive and must overcome structural, regulatory, and financial hurdles,” Eliasaf said. “The state housing bill recently signed into law is a step in the right direction as it will encourage more developers to pursue these high-risk projects. In turn, an increase in housing supply will put downward pressure on prices which will benefit all New Yorkers.”