NYC Apartment Rents Have Bottomed Out. Now The Painful Recovery Begins

New York City's apartment market went through a nearly unthinkable 2020, as residents left en masse, vacancies skyrocketed in a matter of weeks and rents collapsed as a result. A month and a half into 2021, experts who analyze the city's apartment market say the worst is behind us — but coming back from the bottom will take years.

In January, Manhattan net effective rents fell 19% year-over-year, the second-worst month on record, behind November's 21.7% decline, according to Miller Samuel Real Estate Appraiser & Consultants.

But a bright spot has emerged in recent months — as the market adjusts and rental units have become more affordable, new leases are being signed at unprecedented rates, Miller Samuel President and CEO Jonathan Miller said. October, November, December and January saw the highest volume of new leases signed in those respective months since at least the great financial crisis. 

“[An uptick in activity] is showing an improvement in conditions, but it’s a baby step,” he said.

Activity might be rising, but it's as a result of landlords capitulating on asking prices and cutting deals.

“The winter was the bottom of the market, for sure,” MNS CEO Andrew Barrocas said. "Traditionally, we don’t have all of this inventory come winter, so you had a lot of excess inventory that kind of got carried into the fourth quarter and even the first quarter ... There have been some reports that there have been double the amount of deals done, we’re seeing two to four times the amount of deals then we’ve seen in prior years."

With an increase in activity, landlords are just now considering pulling back on concessions and raising rents, he said, making him hopeful for the future of the market.  

“I think you’re going to start to see a turning point,” Yardi Business Intelligence Manager Doug Ressler said. 

Apartment owners' earnings show how bleak the end of 2020 was, and the increased activity hasn't helped much yet. AvalonBay Communities reported fourth-quarter rent declines of 12.5% year-over-year in its New York City portfolio, with rental revenue down 14.5%. Its suburban New York apartments, by comparison, dropped rents an average of 1.9% year-over-year.

Another publicly traded apartment owner, Equity Residential, disclosed in its earnings release Wednesday that its fourth-quarter rental revenue from its nearly 10,000-unit New York portfolio was down 14.6% year-over-year. Its net operating income, or its cash flow on that segment of its portfolio, was down 29.2%, by far its worst-performing market. 

Landlords are still struggling to fill their empty spaces. Those looking to fill their apartments may even dip their prices below the city’s average right now, prioritizing occupancy over returns with the hopes of riding out the harsh wave of the pandemic.

Any landlord offering a rent drop of over 15% average is simply trying to buy time, Joy Construction Corp. principal Eli Weiss said. 

Kenneth Morrison, president of Lemor Realty Corp., said he usually fills his apartments before they become vacant. In September, tenants paying $3,200 per month for a two-bedroom, two-bathroom in Harlem moved out, and it took him until this month to find new tenants to fill the space, he said. To get the deal done, he brought the rent down to $2,700 per month and paid the broker’s fee. 

“This has never happened before,” he said. 

Tenants in five of Morrison’s apartments moved out recently and he has yet to fill them, something he said he had also never experienced before the coronavirus pandemic.

Some of these tenants lost their jobs and had to move elsewhere, he said. Some moved to upstate New York and Pennsylvania, and even downtown, where rents are more affordable than they have been before. 

Apartments along the West Side, including in Chelsea, Hell’s Kitchen and parts of the Upper West Side — such as West Harlem, where several of Morrison’s buildings are located — saw the biggest drop-off in demand through the pandemic, Barrocas said.

The absence of the area's key amenities — such as the Theater District, which remains closed, and academic institutions like Columbia University, which is having most of its undergraduate students learn online this year — is partly to blame.

Gateway cities like New York, San Francisco and Los Angeles have seen the biggest decline in rents since the pandemic began, Yardi’s Ressler said. He believes the rental markets, and prices, will bounce back as the economy gets back on track. 

“We believe that the economy is on a definite trend upwards, and gateway cities are going to benefit from that,” he said. 

Weiss believes that as long as New York maintains the quality of life that attracts people to it, prices will continue to recover over the next two to five years. 

“At the end of the day, New York offers a very unique lifestyle,” Weiss said. “As long as we’re talking about the pandemic, every person that moved out of the city is signing a year lease somewhere else … It’s not an overnight thing, but it will recover.” 

In the meantime, the reset could open the city up to the next generation, Miller said. As inbound migration increases, young people that before couldn't afford to live in the city have made it their home. 

“Not to sound too Pollyannaish here, but part of that ends up becoming a youth renaissance that real estate is enabling, which has been diffused by the proliferation of luxury in recent years,” Miller said.