New York City Real Estate (5195634)

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New York City Real Estate

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New York City is once again demonstrating its resiliency. Office workers are returning, the workforce is growing, tourists are back, lunch hour lines are forming outside eateries, and trains and buses are filling up. The first half of the year the city saw $22.1 billion in investment sales, slightly lower than the last six months of 2021 but significantly higher than all of 2020 and 1H 2021.

It feels like 2019 again except for several significant threats—inflation, which rose to 8.3% in August, interest rates, which the Fed keeps raising, most recently by .75% to 3.25%, and the possibility of a recession.

In this volatile environment, we’re still seeing many positive trends but have also identified a few areas we’re keeping an eye on.

Investor demand has remained strong for free market multifamily buildings this year as the asset class accounted for 75% of the $8.9 billion in multifamily buildings sold in 1H 2022. The return of renters who left during the pandemic combined with a lack of new supply has created a perfect storm, resulting in record high rents. From July 2021 to July 2022, average rents in Manhattan rose 27.50% to $5,113; average rents in Brooklyn rose 16.8% to $3,883; and average rents in Northwest Queens rose 11.5% to $3,426. New York City’s current multifamily yield (capitalization rate) exceeded the average in major markets nationwide, which is prompting investors like Gaia Real Estate to sell in other states and invest here. In addition, the average multifamily building in New York City (as measured by the price per square foot) is still lower compared to 2019.

Our Investment Sales and Capital Services Groups indicate that free market apartment buildings will remain extremely attractive for the foreseeable future even though the cost of debt, which has gone up considerably, presents a new challenge. The long-term supply constraint for apartments in New York City (a projected deficit of 560,000 units of housing by 2030) and rent growth puts these assets in the forefront as a viable long-term inflation hedge.

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New York City is once again demonstrating its resiliency. Office workers are returning, the workforce is growing, tourists are back, lunch hour lines are forming outside eateries, and trains and buses are filling up. The first half of the year the city saw $22.1 billion in investment sales, slightly lower than the last six months of 2021 but significantly higher than all of 2020 and 1H 2021.

It feels like 2019 again except for several significant threats—inflation, which rose to 8.3% in August, interest rates, which the Fed keeps raising, most recently by .75% to 3.25%, and the possibility of a recession.

In this volatile environment, we’re still seeing many positive trends but have also identified a few areas we’re keeping an eye on.

Investor demand has remained strong for free market multifamily buildings this year as the asset class accounted for 75% of the $8.9 billion in multifamily buildings sold in 1H 2022. The return of renters who left during the pandemic combined with a lack of new supply has created a perfect storm, resulting in record high rents. From July 2021 to July 2022, average rents in Manhattan rose 27.50% to $5,113; average rents in Brooklyn rose 16.8% to $3,883; and average rents in Northwest Queens rose 11.5% to $3,426. New York City’s current multifamily yield (capitalization rate) exceeded the average in major markets nationwide, which is prompting investors like Gaia Real Estate to sell in other states and invest here. In addition, the average multifamily building in New York City (as measured by the price per square foot) is still lower compared to 2019.

Our Investment Sales and Capital Services Groups indicate that free market apartment buildings will remain extremely attractive for the foreseeable future even though the cost of debt, which has gone up considerably, presents a new challenge. The long-term supply constraint for apartments in New York City (a projected deficit of 560,000 units of housing by 2030) and rent growth puts these assets in the forefront as a viable long-term inflation hedge.

youssef al ali