When rents in NYC will rise again
I recently read a study done by Nancy Packes Signature Marketing Services on data showing New Yorkers leaving the city based on USPS change address requests (from March to October) and its impact on apartment rents in the city. You can find the study here. There are three interesting findings from the research I found very insightful, which might help answer when rents in NYC will rise again.
The 1st insightful finding helps answer the question: how many people left the city? Below is a summary table I put together based on the study. It shows that temporary address change requests with an address outside of NYC are roughly 97,361. These requests are mostly from affluent New Yorkers with a second home somewhere else. They typically own in the city and are less likely trying to sell under the pandemic conditions. It’s very likely that they will return once the coronavirus gets under control.
The other number that I am really interested in is the permanent request for out-of-city move, which is 170,003. Assuming a typical household size of 2.4, that’s 408,007 people or 5% of the city’s population. These are the people who primarily rent and chose to leave after the pandemic stormed the city. Their departure had a significant impact on the rental housing market. Please note there are roughly 3.5 M housing units in the city and about 2.3 M of them are rental housing. It’s reassuring to know that the permanent out-of-city move request is only about 8% of the entire rental housing stock. The type of New York is dead rhetoric is certainly overblown.
The 2nd insightful finding from the Nancy Packes study is about apartment rents. The study found that on average rents came down 13% in Manhattan, 12% in Brooklyn, and no change (amazingly!) in Queens from March to October. That’s roughly 8% reduction across the 3 boroughs. It’s an interesting coincidence when 8% of the rental housing stock in the city became vacant during 7-8 months, the rents came down 8% in the same period as well.
The 3rd insightful finding from the study sheds some light on who left the city and when they may come back. The study found that roughly 38% of the out-of-city move requests share the top 10 destinations which are all located in tri-state areas (NY/NJ/CT) except one being Los Angeles. These are most likely people 1) who have a 2nd home, 2) who used to work in the city but work from home (WFH) now and want to save on rent by moving out of the city, 3) who are students moving back to their parents home. Destinations for the remaining 62% of the out-of-city move requests are dispersed among 200 counties across the country. These are most likely people 1) who are students leaving campus, 2) who lost their job permanently and decided to move elsewhere.
So when will people come back and if they do, who are they and how their return will affect the apartment rents in the city. In light of the pandemic, companies may allow portions of their employees WFH permanently so some office workers may not come back to the city at all. It’s also too early to predict any significant jobs coming back in the service, retail and hospitality industries.
Among the people who left the city found by the study, I see that only students have a high certainty of returning. According to Wikipedia (here), there are 594,000 students from 110 colleges and universities in the city. Assuming half of them come from places outside of tri-state areas and left during the pandemic, their return will re-fill the city with roughly 297,000 students and create rental housing demand of 99,000 units (assuming 3 students sharing an apartment). That’s roughly 4% of the total rental housing stock and if the interesting coincidence discussed in the 2nd insightful finding holds true, rents in the city will likely increase 4% as well.
For all practical purposes, I see the colleges and universities return to normal by the Fall semester next year. So my guess is that rents will start to rise in late spring and continue through summer due to demand from students returning, and up as much as 4%. Unfortunately student housing demand will be mainly on the low to mid tier of the rental housing market. The luxury rental market driven by high paying jobs may not recover until 2022/2023. Again, great study done by Nancy Packes. Check out some other research posted on their website here. Very insightful information about NYC residential market.
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