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Despite influx of new rentals, the market isn’t budging

Manhattan Skyline - Serj Markarian Associate Real Estate Broker Advisor in NYC
Former Pfizer Headquarters in Manhattan - Serj Markarian Associate Real Estate Broker Advisor in NYC

News emerged this week that the former Pfizer headquarters will be converted into 1,500 rental apartments, marking New York City’s largest office-to-residential conversion to date. This project is being led by Metro Loft Developers, who are also managing the conversion of the former Goldman Sachs headquarters at 55 Broad Street into 570 apartments. Nearby, 20 Broad Street, previously an annex for the New York Stock Exchange, has already been converted into 500 luxury rental units by CentraRuddy.


Given the influx of new rentals coming onto the market, one might expect rental prices to drop, based on simple supply and demand logic. However, this hasn't been the case. Although inventory has increased, it remains below pre-pandemic levels. In April 2019, there were over 41,000 rental units available. As of this past April, there were over 30,000 units, which is 5 percent more than the previous year but still 10,000 fewer than five years ago.


While we've seen a gradual increase in available apartments, it hasn’t been sufficient to lower rental prices. However, it has slowed the rate of year-over-year price increases. For example, asking rents rose 14 percent between April 2022 and April 2023, the highest increase of any market nationally. This past April, the year-over-year increase was only 1.7 percent. So, while the situation is improving, it hasn’t yet resulted in lower median prices.


Additionally, high mortgage rates are keeping potential buyers in their rental units, which is maintaining the vacancy rate. The term "catch-22" aptly describes the situation for renters who are frustrated by high rents but are hesitant to buy due to perceived high interest rates. It’s important to remember that while mortgage rates are higher than they were post-pandemic—an unusual period—they are still about 1 percent lower than the average rate over the past 50 years.


So, while the news of additional rental inventory is somewhat encouraging, it may not be enough to bring about the price drops many are hoping for in the rental market. This ties back to the discussion I covered last month about buying vs. renting. For those facing lease renewals and contemplating their next move, it might be worth exploring this further. There’s even a useful financial calculator that can aid in the decision-making process.


I recognize that real estate needs vary from client to client, with many unique situations. Please feel free to reach out if you’d like to discuss the options available to you and determine what makes the most sense for your current situation.


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