Elegran Insights: Media Vs. Reality
Recent media headlines would have you believe that New Yorkers are fleeing the city in “droves”, in a “mass exodus” from a “deserted” Manhattan. What these breathless headlines don’t convey is the reality of what New York City faces; another challenge to overcome. With almost 400 years of history and past catastrophes such as Civil War, cholera, typhoid, near bankruptcy and 9/11, the fact remains that crises come and go and New York remains a magnet for those who seek opportunity.
The COVID crisis is not the first time New York City has faced a population decline and it won’t be the last due to the city’s transient nature. Manhattan saw a 13% population dip in the 1950’s which continued into the 60’s and 70’s until a reversal in the 1980’s. Additional dips in population were seen after the S&L crisis in the 1990’s, the 9/11 attacks and the financial crisis in 2008; each time the city recovered and reinvented itself. In many ways, the COVID-19 crisis is a “great accelerator” prompting swift and sweeping change in business and technology, travel, consumer demands, behavior and lifestyle choices.
Some changes, such as working virtually, were already underway and may prove to be long-lasting. Nevertheless, key companies such as Google, Facebook, Amazon and Disney are investing in major headquarters in NYC and laying plans for the return of the workforce which will likely continue to center world-wide talent and demand around NYC. The COVID lockdowns forced attention to be focused on family needs, outdoor space and value vs. cost. Many people who were already considering leaving New York City in the next 2-3 years accelerated their plans to move to the suburbs, prompting a suburban buyer frenzy.
At the same time COVID may have already been priced into Manhattan’s real estate market. As an example, an arbitrage opportunity today could be to sell the $3-$5 million home in Westchester, New Jersey or Connecticut for more than it would have pre-COVID. And buy the $3-$5 million apartment in Manhattan that is currently trading at a discount, and as the contrarian investing adage goes, you have to be willing to go against the grain to get the best price.
If the exodus from Manhattan was truly as large as the media is suggesting, we would see sellers continue to reduce their asking prices in order to move properties, which they are not. What we are seeing is quick adjustments to market interest and holding firm to the 12–15% discount level. In actuality, buyers looking for 20–30% discounts are coming away disappointed these days, and it’s apparent the time to have secured the largest discount in Manhattan was in the early days of the COVID crisis in March and April when the fear was greatest.
The exodus from New York City is largely hidden from sales statistics as it is predominantly fueled by former renters becoming first-time homebuyers in the outer boroughs or nearby suburbs. With approximately two-thirds, or 63%, of Manhattan’s consisting of rental properties the vacancy rates have crested above 5% for the first time in 14 years, median rental prices are at a 14-year low and concessions are at a 14-year high.
The day may be near that Manhattan begins to look like a value play compared to other markets, particularly if you believe that the market will revert to the mean. When that happens, the NYC real estate market will roar back to life. New York City is built for the world, but right now it’s a For New York, By New York kind of market.
New Yorkers, enjoy it while it lasts.
To read the Elegran Insights Research Note Media Vs. Reality in its entirety click HERE.