There was a point when New York City apartments would get scooped up the minute they went up for rent. But nowadays, the vacancy rate for multifamily units in New York City is sitting at 5.1%, and that has investors worried.
Should it, though? On a national level, the vacancy rate for multifamily units is 6.4%, so that by measure, New York City is doing pretty well. But here's why local investors may be stressed nonetheless.
An uncertain recovery
The fact that New York City's vacancy rate has surged in the course of the pandemic isn't surprising. But while a 5.1% vacancy rate may be several notches lower than the national average, it's also an all-time high for New York City.
New York City also has several factors working against it that could lead to a prolonged rental market recovery. For one thing, its 8.4% unemployment rate as of December was significantly higher than the national jobless rate of 6.7%. With so many residents grappling with income loss, many aren't in a position to sign new leases or renew existing ones.
Furthermore, many of New York City's amenities are likely to remain shuttered for the foreseeable future. Broadway is closed at least until May. Restaurants and bars can only serve limited customers and can't stay open till all hours of the night like they normally can -- currently, they have a curfew of 11 p.m., which may seem reasonable but is actually a far cry from their usual 4 a.m. close.
But perhaps the biggest factor hindering New York City's rental market recovery is the state of office buildings -- namely, the fact that they're sitting unoccupied. Many New York City renters are willing to shell out a small fortune for a shoebox-sized apartment if it means being in close proximity to their jobs, especially considering that commuting from outside the city can, in many cases, easily mean spending an hour or more on public transit each way.
But right now, a large number of employers are keeping their staff remote while the pandemic rages on. And with commuting off the table, more New York City residents are free to pack up and move to a less expensive or more generously sized home outside city limits.
Not only is remote work wreaking havoc on New York City's rental market right now, but it could continue to do so for years. As more companies make plans to keep their staff remote beyond the pandemic, the appeal of living in the city is apt to wane even further.
The Millionacres bottom line
For all of these reasons, investors in New York City's multifamily properties may be concerned with the aforementioned vacancy rate. The good news is, once the broad economy recovers and more jobs are added, there could be a surge in leasing activity as more workers qualify to rent an apartment. But that general recovery may be months off, and even then, New York City will continue to have its own set of unique challenges to grapple with -- challenges that could lead to a prolonged period of higher-than-normal vacancies and financial losses for investors.