A record 20,000 new market rate rental units are expected to come online in New York in 2023, according to Moody's Analytics CRE. How will a supply surge and economic uncertainty affect the local apartment market? Victor Calanog, Ph.D., Commercial Real Estate Economist, shares his take.
Double-digit rent growth turns to decline in New York
The New York apartment market enjoyed two stellar years of double-digit rent growth in 2021 and 2022, but prudent investors may want to plan for uncertainty in the near term, Calanog says.
Asking and effective rent growth in Q1 2023 turned negative, with both declining 1.5%, Calanog says, citing data from Moody’s. Vacancies, however, remained tight at 3.5%, unchanged from Q4 2022 and 20 basis points lower than pre-COVID levels.
Forecast calls for record supply growth, rocky times ahead
Calanog says there is an argument to be made that first quarter sluggishness tends to be seasonal, with the second and third quarters making up for any early weakness. But one complication for New York’s apartment market is that Moody’s expects over 20,000 market-rate rental units to come online, setting a new record that is about 7,000 units above the prior record from 2017.
That kind of supply growth is particularly unwelcome, given ongoing uncertainties about a potential recession later this year. Supply growth is concentrated in the Bronx submarket, where Moody’s expects close to 7,000 units to come online in 2023.
Multifamily’s prospects remain rosy in the medium-to-long term, given strong demographic support, but with the current economic climate, the near term may require investors to batten down the hatches and prepare for some weakness.
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