Cracks Emerge in Specific Manhattan Real Estate Markets
The impact of luxury rentals
Not all areas in Manhattan have enjoyed a price appreciation in the past year.
As shown in the chart above, properties in the Upper West Side, the Upper East Side, and Midtown have lost steam of late as the average price per square foot has declined. This is due to an oversupplied luxury rental market in Manhattan, which has created a buyer’s market instead of a seller’s market. In such a situation, if someone is looking to buy a home in an area where price appreciation has weakened, it might make sense to see whether rentals have improved or not. Otherwise, the investment could be a risky one.
Rental activity in Manhattan for two-bedroom apartments has taken a beating lately. In the month of January, the number of signed two-bedroom apartment leases dropped at a faster pace than the number of leases for other configurations.
As seen above, the number of new signed leases for two-bedroom apartments went down over 21%, second only to the drop in studio apartment leases. Despite the drop in rental activity, the average rental price in Manhattan has increased 2.5% year-over-year and the rental price per square foot has appreciated 22.7%. The steep drop in studio apartment rental activity tells us that there is more demand for studio apartments than two-bedroom apartments.
Therefore, you probably shouldn’t be buying a two-bedroom apartment in an area of Manhattan where the price rise has hit a speed bump and rentals are weak due to oversupply.
The map above shows that two-bedroom doorman apartments in Manhattan saw the highest increase in rentals in February 2016, rising by 2.1%. Therefore, if you pick an area with robust rental growth and price appreciation, buying a two-bedroom apartment could put you in a profitable position.