Is now a good time to invest in Manhattan, New York residential property?
Posted by Wei Min Tan on April 26, 2022
The Manhattan, New York residential property market had a tremendous year in 2021, and the trend is continuing into 2022. Sales volume for the overall condo and coop markets in 2021 was the highest in 32 years because of low mortgage rates, pent up demand, reopening of the economy and overall optimism as more than 70 percent of New Yorkers have been vaccinated. The streets of NYC feel very normal these days and will be 100% when everyone is back at the office full time.
The bottom of the Covid market was between May to July 2020. From there, pending sales, referring to contracts in pipeline waiting to close, was increasing weekly until late 2021 when it started stabilizing. In Q3 and Q4 2021, we experienced record number of weeks with 300+ contracts signed. Supply was decreasing dramatically as contracts signed exceeded number of new listings coming onto the market. For context, Q4’2021 sales volume was 82 percent higher than Q4’2020. Q1’2022 sales volume was 46 percent higher than a year ago.
Client’s three-bedroom condo with open views, we rented out in 1 week. We targeted larger sized apartments post Covid in anticipation of the market’s need for more space. Weimin’s article, Investing in large 3-bedroom apartment to rent out in Manhattan.
Covid impact on Manhattan property
The Manhattan market was weak from mid 2017 through 2019. This is despite a strong economy (both U.S. and New York City) and record low unemployment rates. In Q1’2020, it first appeared that we were starting the recovery as evidenced by an increase in sales volume (before March 15, 2020). Then after March 15, 2020, New York City was hit by COVID 19 at unprecedented levels and the property market came to a standstill.
The real estate market was locked down from mid March 2020 to end of June 2020. As the market reopened end of June 2020, uncertainty was at the highest. Clients didn’t know how long the recovery would take, retailers closed down, restaurants could not reopen for indoor dining.
The rental market was hit even harder. Because of work-from-home policies at companies, renters didn’t renew leases and moved out of Manhattan. New Yorkers had a once-in-a-lifetime opportunity to work from anywhere they want while saving on Manhattan rents. Market rents dropped 25 percent, inventory shot up 3x and vacancy rate shot up 5x.
I am often asked, during pandemic and currently, whether now is a good time to invest in Manhattan property. There is no short answer. Let’s understand the overall context a bit more.
Why was the Manhattan market soft from 2017 to 2019?
Manhattan property experienced a slowdown from mid 2017 through 2019, typical with property cycles. Looking at property price data going back to 1999, Manhattan condominium prices were going up from 1999 to 2008, had a dip in 2009 and remained flat in 2010, and then went back up from 2011 to 2017.
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The 7-year up cycle ran its course and 2017 to 2019 was a down cycle. If 2009/2010 can be a gauge, it previously was down one year (2009) and remained flat another year (2010). Manhattan experienced a dip between 2017 and 2019, and due to COVID 19, 2020 saw the dip extending as the market and entire U.S. economy came to a standstill. The original 2017 to 2019 slowdown started with the market’s reaction to the decreased tax deductibility on primary residence property. And then it was driven by (i) increased mansion tax and oversupply in the $5m+ high end segment, (ii) increased inventory, (iii) the typical down cycle after an up cycle (2011-2017).
Read the latest Manhattan property market report
Fear and reopening
Early 2020 saw sales volume increasing but then Covid hit NYC. The market came to a standstill from mid March through end of June 2020. Looking back, May to July 2020 was the bottom of the Manhattan market. My clients who bought during that time made the right move and got the best deals. But this is hindsight. The uncertainty then was how long was the Covid impact going to last, and whether it was the end of cities and dense living.
The media talked about the death of big cities. People started moving out of Manhattan and to the suburbs. The suburbs saw a surge in the real estate market starting around July 2020.
Client’s West Village investment condo which we negotiated during Covid lockdown in May 2020. Got amazing terms and price. This 12th floor apartment has a lot of blue sky views, a rare feature in Manhattan.
After the market reopened in July 2020, the real estate industry slowly resumed amid a lot of new protocols. eg Covid forms, very limited showings. Urbandigs, a Manhattan data analytics firm, started tracking weekly activity including the charts below.
Market Supply is at a low.
Demand: Refers to contracts in pipeline waiting to close. Notice the bottom was around July 2020.
Manhattan property market comes back
Post Covid shutdown (Mar to June 2020), pending sales, referring to contracts in pipeline waiting to close, increased weekly since July 2020 and only started stabilizing around June 2021. Supply peaked in October 2020 and kept coming down since then. The supply graph above shows we are at a low in terms of supply because number of contracts signed exceeded new listings that came onto the market. The current market is a seller’s market, driven by:
1) Still historically low mortgage rates
2) Low supply
3) Optimism for Manhattan as people who moved out are all back and wanting bigger apartments
Manhattan condominium historical appreciation
Market Pulse shows we are in a seller’s market and the bottom was in July 2020.
Deal example: Client’s condo at 111 Murray, opposite Goldman Sachs HQ (the green building). Booked at pre-construction, prices up about 20 percent. Weimin’s article, Investing in Tribeca property.
How much Manhattan residential condos cost now
Back in 1999, price per sqft was $480. The peak was in 2017 at $2,149. The below are key data points on a Manhattan condominium in Q1, 2022.
Average price $2.85m (+18.1% vs prior year)
Price per square foot $1,992 (+16.2%)
Transactions 1,647 (+51.7%)
Months of supply 6.2 months (-35.4%)
Condo sales volume in Q1’2022 increased 52 percent compared to prior year and was the highest first quarter sales volume in 15 years! While prices are still lower than pre-pandemic, contracts are being signed every day as buyers lock in historical low mortgage rates.
Deal example: Client bought and then sold this prewar condo that is one block from the World Trade Center, New York’s largest development.
The rental market is super hot
In 2020, a lot of renters did not renew their leases and moved out of Manhattan. Now, as companies are requiring employees to be back at the office, those who moved out of Manhattan are moving back. This has created a rental market that is red hot, like nothing I’ve seen before. There is very little rental inventory and huge rental demand. In representing landlord owners, we get 10 viewings per day and multiple offers at above asking price!
Investor client’s prewar condo purchased post pandemic which we rented in 2 days. Weimin’s article, Strategy of investing in distinguished prewar condos.
Why investors globally invest in Manhattan property
During the pandemic, I represented international clients in negotiating the best terms in memory. Recently, the increase in foreign demand increased even further. Manhattan and London are deemed the world’s top two cities for asset diversification and price stability. These are the world’s only two Alpha++ cities.
Key reasons high net worth individuals globally invest in Manhattan are:
(1) Asset diversification
(2) Stable price increases
(3) Low credit risk
(4) Tax breaks such as depreciation
Investing in a penthouse Manhattan apartment
When do we return to normal
True normalcy will come when everyone returns to the office. Currently, the tourists are back, restaurants are busy and apart from seeing people with masks, one may not even be able to tell we are recovering from a pandemic. But for a local New Yorker, we know we’re missing a lot more office people on the streets.
Currently, most companies are having employees at the office several days a week (not full time yet). Understandably, there will be work-from home, but soon office life will be back to normal. That is when restaurants and businesses will get their pre-pandemic business volume again, and life in NYC goes back to normal.
Weimin’s article, What does a luxury apartment in Manhattan mean?
Is now a good time to invest in Manhattan property?
We are in the beginning of the next up cycle. From history, up cycles usually last about 7 years. Sales volume is very high and sellers have the advantage because there is a lot more demand than supply. The bottom was more than a year ago.
Good news is that prices are still lower than pre-pandemic. There are still good buys and negotiability. It’s just getting less. In a year or two from now, prices would be even higher because property prices go up with inflation. Goldman Sachs is optimistic about 2022 GDP growth because of reopening of businesses, pent up consumer demand and the fiscal packages boosting consumer and infrastructure spending. According to Goldman, the economy has shown tremendous resilience during Covid and we are at the nascent stages of the next economic expansion.
Yes, it’s a good time to buy Manhattan property now. We are at the beginning of the next up wave.
Read about How to buy new launch property in Manhattan
Deal example: Represented multiple buyers at 130 William, FiDi’s new development with very low carrying costs and full amenities. Proximity to the Fulton Street subway station and high quality finishes such as marble bathroom, solid wood doors make this a good buy.
What We Do
We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
Notes: This article was updated April 26, 2022
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