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Construction Levels Help Manhattan Rental Rates
In many ways, 2007 was the culmination of one of the most important periods
in the history of New York City real estate. Over the past decade, Manhattan
apartments have more than tripled in value. While the rest of the country
began to buckle under the pressures of the subprime crisis, the momentum from
such a breakneck pace of growth kept the New York City market going strong
throughout 2007. Nationally, it was the worst year for housing since
the Great Depression; for New York apartments, it was just another solid year
of growth.
It was more than just momentum, however, that helped make 2007 a strong year
for NYC apartments. At least in terms of Manhattan, there is a long-term,
fundamental transformation of the market taking place. Demand started
this transformation, as more and more people – especially professionals – wanted
to move onto the island. Supply is finally catching up, however. Recent
construction has been heavily tilted in favor of the high end markets, both
in terms of the upper reaches of the middle class and the pure luxury market.
It's a general rule in real estate that speaks to a basic faith in the responsiveness
of markets: The nature of recently completed buildings says a lot about
where a market is headed.
For most markets, recent construction is varied enough that it is tough to
find any discernible trends just by looking at the new buildings that have
started to go to market. In Manhattan, however, the nature of recent
buildings speaks volumes about the one and only direction the market is heading
in: upscale.
Recently constructed buildings with a doorman, for instance, are 34% more
expensive than older buildings with doormen. This reflects much more
than the desire for the most modern of accoutrements. Rather, it says
that New York real estate is shifting at, historically speaking, a rapid pace
towards a market that caters almost exclusively to professionals, the upwardly
mobile and others with relatively high salaries.
Furthermore, the average rent in Manhattan south of 96th Street grew to an
astounding $3,310 over the course of 2007.
The nature of the recent construction combines with political developments
in relation to public housing that further shifts Manhattan towards a nearly
irrevocable movement away from the socioeconomically diverse past of the island.
It is good news that supply is responding to demand in a big way on the island
of Manhattan. What is troubling, however, is that rents have gotten so
high that the most famous of American islands may begin to look fundamentally
different in the coming years.
