Checking in on the Urban Real Estate Market
Younger Renters Trickle Back to Cities
The COVID-19 pandemic has upended the way people work, socialize, and raise families, which has led to dramatic changes in the real estate market.
Early in the pandemic, many people left apartments in urban centers like San Francisco and New York to stay with family or to buy houses in areas with more space. However, because of dramatic price drops, the urban residential real estate market is now showing signs of life.
In Manhattan, though offices remain largely closed and many wealthier, older New Yorkers have not come back to the city, some younger renters are beginning to trickle back even as the city implements new safety precautions due to rising COVID-19 cases.
Vacancies Remain High
Recent data shows that new leases in Manhattan climbed by 33% in October. The median net effective rent, meaning the rent including discounts in Manhattan, is now $2,868 per month—down 19% compared to a year ago. Smaller apartments, popular among younger renters, have seen even more significant price drops, with rents for studios declining by 21%.
Still, in October there were 16,145 vacant apartments in New York, an all-time high. Normally the vacancy rate in the city is about 2%, but currently it is over 6%.
The Impact on Banks
Urban real estate vacancies are having ripple effects across many sectors, including the lending industry. Banks used to see lending to landlords and business owners in places like Times Square and SoHo as very safe, but now, many of these borrowers are struggling to make loan payments.
If banks in the US absorb losses on their $2 trillion in commercial real estate loans, there would be significant negative impacts for the rest of the economy. As worries about defaults and bankruptcies rise, banks are becoming more conservative about their lending practices, leaving cash-strapped businesses in difficult positions.
Rising cases and new lockdown measures in cities could cause even more business closures and vacancies in the upcoming months. However, Pfizer (PFE) and BioNTech (BNTX) recently shared positive results from their COVID-19 vaccine trial, which could give the real estate industry and other sectors of the economy much-needed relief.
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