Billionaire real estate investor Richard LeFrak sat down with Bloomberg this morning and unloaded some rather disappointing predictions for New York real estate owners, namely that they should expect 10-15% rent reductions over the coming months/years. As we have several times as well, LeFrak said the pricing weakness will come courtesy of a massive oversupply of new apartment capacity which was built in anticipation of "incomes that don't exist in the market now."
"Rents are going to come down, I would say, 10-15%. They started to already.
Part of that is because we built a lot of new product at the high end...anticipating incomes that don't exist in the market now.
You can have a job in a hotel or the hospitality business and you can have a job in the financial services business. Those two jobs don't pay the same but they both count as a job.
So we need more affordable product in the market. There's huge demand in that price point.
But what we built, whether it's in New York or San Francisco, or some of the other over-served markets, will get absorbed because in the end, it's jobs."
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Of course, as we noted just a few days ago, rents in NYC have already started their descent with median prices down 1.7% in February.
After years of gouging the precious, Ivy League snowflakes that flood Manhattan every summer with nothing but their $10 million inheritance checks, a dream and the Faconnable shirts on their back, New York City landlords, courtesy of the flood of new apartment supply coming online, are being forced to offer record-high rent concessions to attract tenants.
Per the latest February 2017 rental report from Douglas Elliman, the number of new leases signed on Manhattan apartments crashed 27.9% YoY as listing inventory surged 11.7% and median rental prices dropped 1.7%. Meanwhile, even a massive increase in the share of apartments carrying rent concessions, which averaged 1.2 months of free rent, wasn't enough to spark demand.
As Bloomberg notes, even the once defensive studio segment, which caters to all those people who will happily live in a shoe box just to have a Manhattan zip code, is showing signs of weakness.
“There’s so much inventory, and that influx is hitting across all price points, even the studios,” Hal Gavzie, executive director of leasing for Douglas Elliman, said in an interview. “There were a lot of studios that hit the market and have been sitting there. They had to reduce prices.”
Until now, studios -- smaller, cheaper and in demand among young job-seekers in Manhattan -- had better withstood the pressures from the wave of apartment construction that’s kept a lid on prices across the market. Now, even those units are getting reductions as landlords fret about rising vacancies and renters at all price levels sense they have the leverage to demand a better deal.
“In the months of January and February, we had customers requesting three to four months free, which is pretty unheard of,” said Melinda Sicari, a broker with Douglas Elliman.
Meanwhile, East Side and West Side prices were hit the hardest as Manhattan's hipsters continue to abandon SoHo for the cheaper "Uptown" (a.k.a. "Harlem") market.
But this is surely just another weather-related catastrophe...we're certain March will be much better.