What a year it has been! In no particular order, we have witnessed a Russian invasion of a European neighbor that sparked talk of world war three and thrown a wrench into the global economy. It has been heartbreaking to see the suffering of ordinary Ukrainian people. We have endured another nail-biting US election in which democracy, literally, appeared to hang in the balance. And we have suffered a sharp rise in interest rates after a prolonged period of historically low rates and easy money.
And yet, I’m feeling optimistic.
Maybe there is some relief that we have made it through to the end of this fraught year. Maybe it is my nature. I think there is something else at play: the scenes on the streets of my beloved New York City. The crowds have returned, as any resident or recent visitor will attest. Restaurants are again booked weeks in advance. And Broadway’s theaters are filling up. In short, New York City is back. Manhattan may have been sent to the sick bed for a spell by the Covid pandemic. But, as we know, this city always bounces back. Always.
That is not to say the city is the same as it ever was. One profound change is that many professionals will no longer spend five days a week in the office. They have tasted hybrid work, and they like the flexibility it provides. That has big implications for real estate. My clients are increasingly searching for floor plans that support this new way of living and working. This means apartments with closed-off rooms to take Zoom calls instead of open-floor plans. Another change is that house-bound people want more amenities. Clients are coming into our office with check-lists of creature comforts, from well-furnished gyms to outdoor roof-decks and children’s playrooms. The newest hot amenity? On site health spas. These are amenities that many pre-war buildings are simply unable to offer but new developments boast in spades.
So what does all this mean for the market? Well, this year we saw the rental market experience its most torrid run in years. Rents increased 40 per cent, year over year, and inventory stayed on the market less than 9 days, on average, before renting at a full 15% commission being paid. As we marched into Fall, rentals plateaued. Landlords and rental buildings are now offering one to two months free rent to try to offset the sluggishness.
On the sales side, prices have been falling and it has become a buyer’s market. I have seen sellers accept offers as much as 30% percent below the listing price for fabulous, multi-million dollar properties just to make a deal. Some expect prices to fall further with all the talk of a looming recession. Others believe we’ve already touched bottom. There are so many variables at play for the global economy – from interest rates to China’s attempt to transition from its zero-Covid policy to what moves Russia and Saudi Arabia might make next on oil production.
Amidst all this uncertainty, I return to a bit of real estate wisdom. When clients try to “time” real estate investments in the belief that if they hold out just a little longer the deals will get better, my response is: you may be right. Then again, the really good product may not be available. Sellers will sell – up to a point. But if the market dips too low and the seller fees don’t make sense, there is the risk that they will remove their property from the market altogether and good inventory will be scarce. So, you must ask yourself: do you want a great deal on a so-so apartment or a good deal on a great apartment?
Another thing to consider is the location of that apartment. With space always so limited in Manhattan, many buyers seeking the full complement of amenities are looking to new developments in places like Downtown Brooklyn and Long Island City. That is why if you pay attention, you might notice the influx of skyscraper-height cranes towering over these neighborhoods. In fact, this past summer the greatest condo sales activity was in Brooklyn and Queens. These new buildings continue to pull people in, even as the outlook for the market has become cloudier. The news that Meta, Facebook’s parent company, will vacate about 250,000 square feet of space at Hudson Yards is raising concerns that the tech sector, one of the last big sources of expansion in the New York office market, may be cutting back. At the very least, big tech companies appear to be halting their rapid expansion in the city as they try to lower costs.
And now for the elephant in the room: Interest rates. Rising rates have softened demand for buyers and pushed prices down. Rising rates mean higher mortgage rates – if you can even get one. But, dear shopper, do not be deterred by rates alone. There are work-arounds. I have never seen more success from portfolio lenders than I have today. They can, for example, take a 30-year fixed rate mortgage at 8 percent and reduce it to less than 5 per cent, with folks opting to “buy down” points as long as they plan to hold onto the asset for more than four years. It’s a very smart maneuver because if you’re holding the asset for that long, paying down points pays for itself, and then some. If you’re interested, we can discuss this with you further.
This has been a year of reckonings in so many ways – personally, financially, politically. Still, I believe in New York City and the people who call it home. I have never been prouder to see us – and our city – rally and overcome these trying times.
I would like to wish you and yours a wonderful, healthy, safe and memorable new year, and thank you so much for your continued support and trust.
It truly has been a pleasure.