The COVID-19 outbreak has already had a profound impact on the U.S. economy, and that’s extended to real estate. But some areas have been hit harder than others, and Manhattan — the heart of New York City — is one of them.
As of June 2020, more than 10,000 Manhattan apartments were listed for rent, representing an 85% increase from the previous year. In fact, the official vacancy rate reached 3.67%, which is lower than the national average but high for a place like New York City, where living space is usually perpetually in demand.
All of these vacancies have landlords spooked, and so they’re doing something that’s somewhat unprecedented: lowering rents. The average Manhattan rental fell 8% in June, and almost half of all new leases came with incentives like free rent.
All of this is bad news for property owners in Manhattan. But here’s why landlords in other parts of the country shouldn’t stress over these New York City-specific trends.
1. Manhattan has some of the most inflated rents in the country
Millions of Americans have lost their jobs or seen their income impacted in the course of the COVID-19 pandemic. Meanwhile, Manhattan has some of the most expensive rents in the nation. Case in point: A one-bedroom apartment costs $3,400, on average. It therefore stands to reason that some New York City tenants have opted not to renew their leases and are instead pursuing lower-cost living arrangements. But if you own a building in a less expensive city, you may not have the same kind of trouble finding tenants for it.
2. Many Manhattan residents are fleeing the city
A lot of people who rent in Manhattan do so because they can’t afford to buy a home within city limits. But these same people may be wealthy enough to buy a suburban home outside the city that offers more square footage for their money. Many are leaving cities and opting for suburbia in the wake of the pandemic, and those accustomed to high rent may find that they have plenty of options if they’re willing to put themselves an hour or more away from New York City.
That said, let’s not forget that when the pandemic broke out on U.S. soil, Manhattan was initially its epicenter. Renters in other cities may be a lot less eager to flee.
3. Home prices have spiked
In July 2020, the median price of a sold home was $304,100. That’s an 8.5% increase from a year prior. Right now, it’s difficult to buy a home. Those looking to own are facing a limited selection of properties at higher prices, many of which are subject to bidding wars. While Manhattan may be seeing its share of rental vacancies, the demand for rentals won’t necessarily wane in the U.S. as a whole.
Right now, there’s plenty for New York City landlords to worry about. But landlords and investors in residential properties in other parts of the country don’t need to be as concerned, because while Manhattan vacancies may be spiking and rents may be plummeting, that’s not necessarily going to be a national trend.