Record High Rents in Manhattan

In July, rents in Manhattan reached a new high due to higher interest rates and low supply, defying predictions of analysts and economists. The average monthly rent was $5,588, a 9% increase from last year, setting a new record. The median rent also reached a new high of $4,400 per month, along with a price per square foot of $84.74. This marks the fourth time in five months that Manhattan rents have hit a record.

Despite a decrease in population during the pandemic, average rents in Manhattan have increased by 30% compared to 2019. Jonathan Miller, CEO of Miller Samuel, a leading appraisal and research firm, expects August rents to reach another record as families typically look to move before the start of the school year.

“We could see another month of records,” said Miller.

Population Loss and Remote Work

Manhattan experienced a population decline of 400,000 between June 2020 and June 2022, according to U.S. Census data. Although the population has increased since last year, it is still likely below the 2019 level. Additionally, office occupancy in Manhattan remains low, with only 48% of offices occupied at the end of July, according to Kastle Systems.

Factors Driving Rent Increases

Despite the population loss and rise of remote work, Manhattan rents have continued to soar. The lack of apartments for sale, caused by higher interest rates, has forced many potential buyers to rent instead. Furthermore, younger workers have flocked to the borough since the pandemic.

While the number of apartment listings is below the historical average, the inventory of apartments for rent actually increased by 11% in July. However, the number of new leases signed declined by 6% compared to the previous year. This combination suggests that Manhattan renters may have reached their financial limit.

“It looks like rents are probably close to the tipping point,” Miller said. “We’re seeing transactions slip because of affordability.”

Rent Increases Across Apartment Types

Rent increases in July were seen across all apartment types, from small studio apartments to spacious three-bedrooms. However, larger and more expensive apartments have experienced the highest price increases since the pandemic.

While rent prices for studio apartments have gone up by 19%, average rental prices for three-bedroom units have increased by over 36%.

Impact of Airbnb Units and Rent Regulations

Brokers attribute the scarcity of rentals to the growth of Airbnb units. Recent rent regulations have also removed tens of thousands of units from the market, as landlords claim these laws made it unprofitable to renovate dilapidated apartments. Consequently, many units are now vacant and unrentable.

Furthermore, despite rent hikes of 30% to 40% last year, many renters chose to stay in their current apartments, further limiting the supply.

“The vacancy rate is still low, making it very hard for tenants to secure an apartment,” said Janna Raskopf from Douglas Elliman. “Many tenants renewed their current leases and are staying put. I believe this trend will continue at least for the next couple of months.”