Published by Forbes.com | July 5, 2023
Over-regulation and the systemic lack of new housing in New York City have created an opportunity for investors in free-market multifamily assets.
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Over-regulation and the systemic lack of new housing in New York City have created an opportunity for investors in free-market multifamily assets. In this article, we review emerging investment trends, underlying fundamentals and drivers. We also have some recommendations for smaller investors.
Investor’s Shift: Regulation Effect #1
Market rate apartments, which make up 45% of the City’s 2.27 million rental units, consistently account for the majority of sales in the multifamily market.
Our research shows that of the $2.11 billion multifamily sales recorded in Q1 2023 in New York City, 78% of the dollar volume was for buildings with predominantly market rate units, signaling continued investor confidence in free market multifamily. In contrast, regulated rent stabilized assets, which make up 44% of NYC’s rental units, accounted for only 14% of the dollar volume in the first quarter.
The Drivers: Regulation Effect #2
There are multiple factors driving investment in New York City’s free market apartment buildings.
Demand for housing is stronger than ever but unlike many other parts of the country, supply isn’t keeping up. New residents flock here as students to attend one of the City’s colleges and universities or to work in industries such as FIRE (finance, insurance and real estate), technology or the arts. Higher interest rates have discouraged many renters from buying, which is also putting additional pressure on the rental supply. Therefore, the City’s housing crunch is expected to persist as economic indicators continue to improve, including the following:
- The fastest population growth since the 1930’s. New York City’s population increased by 6.8 percent between 2010 and 2020 or by 562,000 people totaling 8,804,000. After losing residents during the pandemic, economists forecast that net migration will increase again this year.
- Jobs grew by 163,200 in the past 12 months. The total jobs number is 4,683,100 pushing NYC above the 4,668,000 level last seen in February 2020.
- NYC is a college town. Over 550,000 students have resumed in-person learning at the City’s 110 universities and colleges.
- Tourism is on the rebound. The City is expecting 61 million visitors in 2023, up from 56 million in 2022 and on track to reach the record level of 66.6 million visitors set in 2019.
- Rental growth. In May, increased demand pushed up median Manhattan rents to $4,360, up 10.6% from the previous year; Brooklyn rents rose 9.7% year-over-year to $3,517; and rents in Northwest Queens rose 16.2% to $3,368 over the same period, according to the Elliman Report.
