Q3 2022 Multifamily Real Estate Report: New York, NY
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The New York multifamily market had over 120 deals and 210 buildings in Q3 2022, bringing in over $3.5 billion.
While volume this quarter was down compared to last quarter in building, dollar, and transaction volume, there were significant increases in these areas year-over-year.
New York is additionally seeing a continual recovery in its employment base, gaining nearly 200,000 jobs in 2022.
Even with economic headwinds, the multifamily real estate market in New York had an overall increase of 38% year-over-year.
General Area Overview & Demographics
New York City is home to a diverse population of 8.6 million people, making it the most populous city in the United States. Its population is primarily comprised of Caucasians (44%), African Americans (25%), Hispanics and Latinos (28%), Asians (12%), and other races (1%). With a median age of 38, this vibrant metropolis also boasts a large number of young adults.
New York City has long been an immigrant hub: One-third of its residents are foreign-born, and nearly 200 different languages are spoken here.
Nearly half of all New Yorkers were born outside the United States, making its population remarkably diverse and cosmopolitan. Moreover, nearly 30% of the city’s population speaks a language other than English at home.
A major global financial center, New York City is renowned for its high standard of living associated with having one of the highest cost-of-living index scores in the world.
New York City Household Income
According to U.S. Census Bureau data from 2016 to 2018, approximately 17% of households in New York City had an income below $25,000 per year, compared to 12% nationally during that same timeframe.
On the other end of the spectrum, 19% had incomes above $150,000 per year – nearly double the national average during those years. Overall, median household income in New York City was $63,909 between 2016 and 2018, significantly higher than both NY state ($60,850) and national averages ($61,937).
The density of people within New York City creates an incredibly competitive real estate market where multifamily dwellings are constantly in demand.
As such, affordable housing options remain scarce, and rents continue to rise throughout many neighborhoods across Manhattan, Brooklyn, and Queens.
This makes multifamily properties increasingly attractive investments for local developers looking to capitalize on this trend despite frequent supply shortages due to onerous zoning regulations.
Summary of New York Multifamily Real Estate Performance in Q3 2022
Free market deals made up nearly 90% of the transactions that took place in New York’s multifamily market in Q3 2022.
This is likely due to the impact of the Housing Stability and Tenant Protection Act of 2019 on rent-stabilized properties.
This quarter is the third in a row that New York City has had a vacancy of less than 2%. Class B and C units had some of the lowest vacancies in decades, but Class A’s vacancy has seen an increase of 50 basis points.
The increase is largely due to renters moving from more expensive to more affordable units.
However, with supply growth moving at a healthy pace of over 20,000 units every year becoming available, vacancy rates should hold relatively steady and shouldn’t drop much further.
What Are Multifamily Rents Like in New York?
Updated guidelines will allow for notable rate increases in New York’s rent-stabilized stock, supporting solid growth overall. The mean effective rent reaches $2,870 monthly, nearly 6% above the 2019 rate and a burden to Americans living in New York.
The average rent is 6% above the rate from 4 years ago, now reaching upwards of nearly $2,900 per month.
A 3.25% rent increase has been approved for one-year leases, and a 5% rent increase has been approved for two-year leases. As of the middle of 2022, these increases apply to over 40% of New York’s multifamily inventory.
Purchase & Leasing Activity
Brooklyn and Manhattan below 96th Street accounted for over $1 billion in sales volume and $2 billion in sales volume, respectively.
These two submarkets together total nearly 90% of the total quarterly sales volume.
All top ten New York multifamily sales in Q3 happened in these two areas.
Notable Multifamily Real Estate Deals in New York in Q3 2022
The most notables sales of the quarter were
- Ponte Gadea’s acquisition of 114 Fulton Street for $487 million.
- A&E Real Estate’s acquisition of 160 Riverside Boulevard for $415 million.
The highest dollar deal in Brooklyn was the purchase of 80 Dekalb Avenue for nearly $200 million by KKR.
New Multifamily Real Estate Development Activity in New York in Q3 2022
There was a 1% growth of supply by developers over a one-year span.
Queens added over 6,500 units, and Brooklyn gained over 9,000.
Of the 21,000 units that will be completed, Brooklyn will receive one-third by the end of 2022.
Average tenant improvement allowances are also jumping in NYC to nearly $134 per square foot, a 10% increase over 2021.
Market Forecast for New York’s Multifamily Real Estate Market
When annualized, the $3.57 billion in third quarter volume represents approximately $14 billion in multifamily transactions, still very robust.
However, these numbers are lagging indicators. Contract signings that took place 60 to 90 days prior to closing counted on a lower interest rate environment. Therefore, we expect the full effect of rising interest rates to sink in the next year.
Rising interest rates will likely show their true impact in 2023. The numbers posted this quarter are largely lagging indicators due to many of the contracts being signed two to three months before closing in hopes of interest rates lowering toward the end of 2022.
Takeaways for Multifamily Real Estate Investors
Investors considering the multifamily real estate market in New York should look into Class B and C buildings as residents are looking for more affordable alternatives to hedge against rising rental rates and economic headwinds.
Stay diligent and do your research.
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