Despite job losses and the effects of 9/11, investor demand for multifamily and office properties in New York City remains strong. And that isn’t about to change. A new report from Marcus & Millichap cites positive demographics and a slower construction pipeline as two reasons why both sectors remain hotbeds of investor interest.
"New York City boasts the highest percentage of households renting their homes in the entire nation, at 65%, and the cost of purchasing a home remains out of reach for may residents," says Mitchell LaBar, senior vice president and regional manager of Marcus & Millichap’s Manhattan office.
In 2002, multifamily developers built more than 4,400 new units in the NYC market. However, Marcus & Millichap predicts that multifamily construction will slow to about 3,600 units this year. On the vacancy side, multifamily vacancies rose to 4.2% last year. Although that number is expected to climb to 5.1% this year before demand stabilizes, Marcus & Millichap forecasts that asking rents will grow by 2.3% (or $2,195 per month) during the same time period.
In the multifamily sector, apartment properties worth less than $5 million may offer the best prospect for price appreciation. The average sales transaction for a NYC multifamily property was $7.7 million, more than twice the $3.1 million average transaction price posted in the market in 2001.
On the office side, the city saw little new supply come on line in 2002 — a total of only 2.5 million sq. ft. were delivered. But 4 million sq. ft. of new office space is expected to hit the market this year as several huge developments begun prior to Sept. 11 are completed. One project — Boston Properties’ Times Square Tower — will add more than 1 million sq. ft. of new office space to the midtown area later this year. "After struggling in 2002, economists are forecasting positive job growth for Manhattan in 2003, with the city gaining 20,000 jobs overall," adds Marcus & Millichap’s LaBar.