The 2021 real estate market took New York by surprise. Once again, those pundits who predicted the demise of the city turned out to be wrong, as 2021 developed into one of the most robust sales and rental years within memory. Manhattan proved especially resilient in the luxury new development market, where sales topped all expectations and reduced a deep supply of newly constructed apartment inventory to its lowest point in years. Overall, supply in the Manhattan market is down around 30% year over year, while pending deals are up 150% during the same time period (source: UrbanDigs) Unlike in other hot markets, this one has been driven primarily by local demand. The market has seen very little foreign buying, although there has been a surge in pied-a-terre purchases by American buyers from across the country.
As always, the Manhattan market can be segmented by price range, property type, and location. While sales have been robust throughout the market, the luxury and ultra-luxury markets have been unusually strong. Several marquee co-op sales (the penthouses at 1125 Fifth for $45M and at 2 East 88th for $60M) competed with the continuing enormous numbers achieved at 220 Central Park South, probably the most successful condominium building in American history. The downtown market also saw unprecedented results, especially in the West Village and Tribeca, where multiple units traded for $30M and over. And the Upper East and West Sides also notched extraordinary condominium successes, with buildings such as 200 Amsterdam and 200 East 83rd St. proving that Third and Amsterdam Avenues can also be luxury addresses as long as the product is right.
The co-op market as a whole continues to suffer loss of value relative to condominiums, not only because of the often burdensome admissions requirements but also because supply chain issues and worker shortages have exacerbated the always difficult logistics of doing a renovation. Still, 2021 did see a return of competitive bidding; even in the first quarter, when other parts of the market were just beginning to accelerate, apartments between $500,000 and $2,000,000 began to see multiple bids and sales prices over the asking price. That trend has continued and grown throughout the year. And as tough as things have been for buyers in Manhattan, they have been even tougher in northern and central Brooklyn. One property, a fourth floor walk-up 900 sq ft 2 bedroom asking $919,000, had 35 open house showings and multiple offers above ask within 24 hours!
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Perhaps because of restrictions imposed by the pandemic, townhouses have also enjoyed a resurgence in both Manhattan and Brooklyn this year; there has definitely been an increase in the appeal of unshared space and outdoor space. Townhouses enjoyed a jump of 75% in year over year sales volume from 2020, and a 20% jump from 2019.
In ordinary times the market tends to compensate for a busy sales environment with less activity in rentals, and vice versa. 2021 saw remarkable activity in both segments of the New York market. Even as the sales market was heating up, rental inventory was shrinking as the search for available units became increasingly competitive. Among other benchmarks, we have seen commission fees revert from owner-paid to the historically more typical tenant-paid. This is a clear signer of the tighter market, since tenants only pay commissions when they believe they have no alternative. And rental prices have stabilized after dropping during the past 18 months and even begun to increase.
While sales prices also stabilized during 2021, there has been little price appreciation. The surge in the market has been driven, at least in part, by seller price capitulation in the late months of 2020 and early 2021, which encouraged buyers back into the market. Prices firmed up since the first quarter, but overly ambitious sellers still tend to see their properties linger on the market. Buyers feel eager to acquire their piece of the Big Apple, especially before the inevitable 2022 increase in mortgage rates, but they will not overpay.
As the country moves into 2022, the biggest unknowns most likely to impact real estate are mortgage rates, regulation, and inventory. In New York City, agents feel concerned about regulation; we all know that rising rates are a foregone conclusion. For now, rental agents are again permitted to collect fees from tenants, but that debate continues to rage on at the Department of State. While the real estate market has adjusted to the loss of the SALT (state and local tax) deduction at the Federal level, and the graduated mansion tax at the city level, uncertainty remains as to whether the city will seek new ways to monetize real estate transactions to fill its depleted coffers.
Can supply meet demand? Less new inventory is appearing on the marketplace as increasing numbers of projects sell out; at the same time, resale inventory stands at historic lows. While it is highly likely that prices will rise during the coming year, COVID variants or no COVID variants, the larger question remains: will supply rise to meet demand. Neither a spring nor a fall surge in inventory commensurate with past years occurred in 2021. In 2022 the market needs listings to keep the real estate economy primed and moving.