Stephen Kliegerman, President of Brown Harris Stevens Development Marketing, and his team briefed us last week on Manhattan’s New Development (ND) market. We learned that the reason behind the high sales volume in the ND market this past quarter—up 33 percent from the previous quarter—was due to immediate occupancy availability coupled with limited new launches. Contracts signed, on the other hand, were down 11 percent from the previous quarter, likely due to those with existing low mortgage rates taking caution on making moves in the current interest rate climate. With that said, the ND market is experiencing a shift that hasn't been seen in nearly a decade. Let’s take a closer look …
Decreased Inventory: For the first time in eight years, ND inventory has dipped below the 6,000 mark. This is partly attributed to an absorption rate ranging from 1,500 to 2,000 units per year. Approximately 90% of ND inventory is offering immediate occupancy, which is contributing to the increased absorption rate. At this rate, there's roughly only four years' worth of inventory remaining, hinting at a potential supply crunch on the horizon, 12 to 24 months from now.
Commercial to Residential Conversion: While we’ve seen some and continue to hear more about commercial building to residential property conversions, it's not as straightforward as it seems. The conversion process can be costly, and many commercial buildings carry debts that make renegotiation with banks difficult. We’re also starting to see more companies require their employees to return to work in-person, which may lead to a rebound in commercial occupancy rates. Therefore, we shouldn’t count on these conversions to make much of an impact, if any, on inventory.
Changing Buyer Behavior: Buyers are taking a more cautious and discerning approach rather than jumping into speculative pre-construction purchases. They want to get a hands-on feel for the unit, as most are likely looking at it as a primary residence. This can ultimately hurt the pipeline.
Future Pipeline: Unlike previous years, there aren't as many projects in the planning stages. For those of you who may have noticed, the skyline isn't filled with cranes as it once was. This suggests a slowdown in new construction, adding to the potential scarcity of new offerings.
It’s abundantly clear that Manhattan's New Development market is undergoing a transformation. Reduced inventory, changing buyer preferences, and a shift towards immediate occupancy are shaping the future of the market. Also, as I mentioned last week, the New Development market is facing challenges, as developers who had postponed sales in hopes of better economic conditions may now need to list their properties, potentially resulting in price reductions. The time may be ripe for those looking to purchase, especially considering reduced inventory and strong absorption rates could mean potential price increases later down the road.