NYC Rents Trend Down From Summer Highs

Good morning,

NYC rents trend down from summer highs; extreme weather drives up insurance costs, particularly on coasts; and sellers incentivizing buyers amid frozen market. Let’s delve into today’s topics.

📈 Market Update

🏙️ NYC Rents Trend Down From Summer Highs

New York City's rental market reached new heights over the past two years as demand surged following pandemic shutdowns. However, data from September suggests the market may be starting to ease back from its feverish pace. In Manhattan, the median rent for new leases dropped 1.1% from August's record high to $4,350. The borough's vacancy rate also rose to 3.07%, the highest in over a year. Other boroughs like Brooklyn and Queens saw similar trends, with rents retracting slightly from summer peaks as new lease signings declined. While rents remain elevated compared to pre-pandemic levels, the data points to fading momentum after the boom.

Tenants Gain (Slight) Edge:
Landlord concessions also increased, while new lease signings dropped 12% as vacancies rose. Though still up sharply from before the pandemic, the data suggests tenants may regain some bargaining power as competition eases after the rapid rebound. Landlords are increasingly open to negotiations as rents retreat from unsustainable levels.

⛈️ Extreme Weather Drives Up Insurance Costs, Particularly on Coasts

The increasing frequency and severity of natural disasters like hurricanes, flooding, and heatwaves is causing property insurance premiums to surge across coastal states and inland markets affected by extreme weather. Retail, office, and multifamily buildings saw insurance rates rise 25-35% higher than average over the past year, with major insurers pulling back from high-risk areas. This is eating into landlord profits, as insurance costs for CMBS properties jumped 73% in five years - far outpacing broader inflation.

🏦 Sellers Incentivizing Buyers Amid Frozen Market

To entice purchases in the tough commercial real estate climate, an increasing number of sellers like JPMorgan and Morgan Stanley are offering their own financing on sales of property loans or buildings, sidestepping frozen debt markets where rates are prohibitively high. Seller financing removes the need for outside financing, speeds sales, and reduces seller exposure, though presents risks for buyers. With property values falling and repayments stalled, banks aim to offload loans and real estate off their books more urgently. The share of deals with seller financing has jumped this year as fewer lenders provide liquidity.

✍️ Further Reading

• This Inflation Report Won’t Let the Fed Declare Victory (WSJ)

• US Consumer Prices Rise at Brisk Pace for Second Straight Month (BBG)

• Fannie Mae Launches New Workforce Housing Financing Program (WSJ)

• Goldman Sachs’ Aasem Khalil Calls Dallas the NYC of the South (RD)

• Times Square Goes From Deserted to Bustling (WSJ)

• Here Are the Factors That Could Stop the Continuing Slide in Multifamily Transactions (GS)

📊 Chart of The Day