New York’s outer boroughs recorded some of the highest annual rent increases in the country. But though New York multifamily’s performance has been solid through Q3 2022, the city’s apartment market may have passed this cycle’s peak. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.
New York apartment rents jump, but pullback expected
Multifamily performance metrics for the New York metro remained solid throughout the first three quarters of 2022. Vacancies ended the third quarter at 3.5%, where it has hovered all year. That is 20 basis points below the pre-pandemic figure of 3.7% at the end of 2019, according to Moody’s Analytics CRE. Effective rents rose 3.3% in the third quarter, a slight pullback from the second quarter’s 4.4%, but the metro’s year-over-year rent growth of 20% is among the highest in the nation.
Still, New York may have passed the cyclical peak. Year-over-year rent growth from the middle of 2021 through the second quarter of 2022 clocked in at a blistering 27.8%, the second strongest annual figure for the New York metro in the four decades Moody’s has been tracking the market. A 20% annual change in Q3, therefore, represents a pullback. But what with economic uncertainty and the looming possibility of a recession in the next 12 months, that’s not surprising. The current forecast calls for a drop to below 10% annual growth in 2023 — which, if it comes to pass, would be a great result given expectations of a recession approaching.
Top submarkets: Kings, Queens and Bronx counties
Some submarkets remain standouts. Rent growth in the outer boroughs remained strong, with Kings County, Queens County, and Bronx County posting some of the most robust year-over-year effective rent increases in the country. Kings County at 28.8% and Queens County at 25.6% rank second and third among the 846 apartment submarkets covered by Moody’s Analytics, while Bronx County at 21.3% ranks a very respectable seventh.
Multifamily prospects relatively bright for 2023
Demographic tailwinds also remain solid for New York multifamily, perhaps even aided slightly by rising mortgage rates that are keeping some renters from becoming homeowners. Expect some slowdown relative to recent recovery periods, but prospects remain relatively bright, especially compared with other property types like office buildings.
By the editorial team at Story by J.P. Morgan
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