A Look Ahead: What to Expect from the 2021 NYC Rental and Sales Market

As we turn the final page on 2020 and head into 2021 many clients have asked me what I expect from the real estate market in the upcoming year. Overall, I expect the NYC real estate market to rebound quite well and continue its strong momentum heading into the new year. 2020 has proven to be an unprecedented year yet one that should strengthen the resolve of the city’s apartment owners. For all the mayhem, the sales market has shown incredible resilience.

Certain submarkets have been affected unevenly and these results will continue to bear out in 2021. Below are my projections for the sales and rental market for the upcoming year as well as some X-Factors that may prove to be a deciding factor in how each market ends up.

Sales Market

At the time of writing this, the sales market in NYC is strong. Momentum is building, prices are stabilizing, demand is increasing and supply is decreasing. The sub $3M market which has been the key resilience factor in the market’s recovery continues to transact at paces higher than 2019. According to UrbanDigs, there have been more contracts signed in Manhattan in the past four months (September, October, November, and December) than the corresponding four months in 2019. Whereas in Brooklyn, this trend has continued for five straight months (August, September, October, November, and December).

Furthermore, as buyers continue to transact at a healthier and steadier pace, discounts have also begun to decrease in Manhattan and stabilize in Brooklyn. This provides a great catalyst for 2021 as almost all signs and indicators are pointing in a positive direction. The election is behind us and the vaccine is being rolled out every day helping to if not erase, at least diminish any fears and uncertainty that hung over the market for much of 2020.

While the average Manhattan listing discount was 9.3 percent in 2020, the month of December saw a listing discount of only 6.1 percent. Likewise, in Brooklyn where the average listing discount was 6.7 percent for 2020, the listing discount for the month of December was 6.1 percent. This shows that the market is transacting more and at prices closer to ask- all signs of a strong market.

For 2021, I expect this trend to continue on its downward path and expect listing discounts for Manhattan to be closer to 5 percent and Brooklyn to be closer to 3 to 4 percent. It is important to note that what is driving this pricing trend is the lower end of the market. The luxury market while still transacting- has closed a flurry of big deals over the past three months, but is still seeing large discounts. High-quality product is trading at depressed prices and will continue to be depressed throughout 2021. Lower quality projects that were targeting big sellouts and have a lot of unsold inventory are in big trouble and I expect will either be taken over by lenders or repurposed into other uses as taxes and inventory loans prove too burdensome for developers to maintain.

For some of these projects, their cost basis will allow steeper discounts which can present fantastic opportunities for buyers. For others, they simply will not be able to lower prices enough to attract customers and still be able to pay back their lenders and investors.

This will be a major factor in 2021 and some of these developments will present the year’s best buying opportunities for savvy buyers and investors.

Rental Market

The rental market is and has been a completely different situation all year. At the time of writing this, Manhattan prices are still down anywhere from 20 to 30 percent and Brooklyn prices by all measurements are faring just as badly, if not worse. There is still an enormous amount of inventory and even more if you consider most landlords are not releasing all of their vacancies onto the market. I don’t expect major price corrections for at least a year. Some price corrections may occur in the fall when I expect people to start getting back into the office, but that is a long time off for many landlords who are also hurting from the loss of or at the very least decrease of commercial rent in mixed-use buildings.

COVID brought a perfect storm to the NYC rental market. For years, landlords have timed the majority of their inventory to renew in the spring when prices were highest and renters were aplenty. This led to thousands of leases coming up for renewal in the heart of the pandemic. Some smart landlords were able to get ahead of it and offer massive discounts to entice renters to stay, but many- no matter how much of a discount they offered, saw their tenants flee to their parent’s homes or second homes for more space and to save money. Some newly minted remote workers even began renting AirBnB’s and traveling while working- all for less than their NYC apartment rent.  

The market began to stabilize in the fall but has again cooled with no signs of life until early spring. The major factor in projecting the rental market for 2021 is when workers will begin to return to the office. While many offices are still up in the air and deciding when and what returning to the office looks like, it doesn’t seem we will see a massive return of the city’s workforce until fall 2021.

Until then, rentals will continue to transact at current levels and there will be depressed activity. Good product will go first and any other inventory will languish on the market for months on end. Small landlords will have a hard time holding on as institutional players will begin to make their plays for multigenerational family buildings that have no choice but to sell at a fraction of what they could have fetched only a year and a half to two years prior and the continuing of the institutional apartment owner trend will engulf the city.

The X-Factor

Among the hardest submarkets to project is what will happen to retail spaces such as restaurants and offices throughout the city and how this will affect both the sales and rental market not only in 2021 but in the coming years as well.

It is no secret that restaurants, in particular, have been decimated by the COVID-19 pandemic and the closures that have persisted for the better part of a year now. In fact, as of writing this- indoor-dining is still prohibited in NYC. The closure and mass vacancy of retail throughout the city is a ticking time bomb that needs to be dealt with immediately. Even an optimistic view of 50 percent restaurant closure would have far-reaching and unknown consequences on the city’s financial health.

It would disincentivize people to live here, lower rent collection- which lowers property taxes but ultimately, leads to foreclosure of many properties that cannot withstand their commercial tenant being vacant for months if not years on end. Coop buildings that have an anchor tenant to help keep maintenance charges at bay will also struggle, seeing their maintenances increase and their property values plummet.

Likewise, if companies choose to reduce their real estate footprint and only have people work from the office a few times per week and adopt a hybrid model, this will have an adverse effect on the entire NYC ecosystem. Fewer workers not only means more vacant space for landlords to fill and less tax revenue for the city in form of property taxes, sales tax, and transit revenue- but it also means fewer customers for downstream businesses such as restaurants, pharmacies, stores, etc.

How these two factors play out is anyone’s guess and NYC is far from out of the woods with a large budget deficit and no end to the bleeding in sight as large companies flee for fewer taxes and warm weather, but if 2020 has taught us anything that we shouldn’t have needed to been reminded of in the first place: it is the resilience of this city, its ability to take a punch and come back stronger. For all those reasons and more I expect 2021 to rebound nicely and continue the positive momentum cultivated at the end of this year.

Here’s to a happy and healthy new year.