Summary
Manhattans rental decline was easily forecast by the increase of more affordable rents in New Jersey's Gold Coast which migration of tenants is historical beining with "Black Wednesday" the collapse of the bond market in October 1987 and the followinbg recession.
Analysis
Since the early 1980's development of the "Gold Coast" in New Jersey which consists of communities from Jersey City to North Bergen has has created thousands of condominiums and rental apartments at prices below the Manhattan markets attracting both upper management and mid-level tenants. Beginning with "Black Wednesday" in October 1987 the trend in the Gold Coast was a transition from condominiums to rental properties and this trend is also impacting the Manhattan marketplace. This article defines the market change for rental properties in Manhatan but does not include the flight of renters into New Jersey at rental rates which in many instances are from 1/3 to 1/2 less then the rental rates in Manhattan. Furthermore, New Jersey's rental units are much larger with a high rate of two bedroom units that can be shared thereby providing a soft landing as renters move across the Hudson River to cushion themselves from potential loss of jobs or reductions in salary and commissions.Investors in Manhattan apartment overlooked the happenings in the Gold Coast markets which should have sounded the alarm that an exodus was about to occur in the Manhattan market and vacancies were on the way. The communities that most impact the Manhattan rental market are Jersey City, Hoboken, Weehawken, West new York and North Bergen. As the condominium market in these communities slowed developers began to switch their new starts into rentals as well as unsold condominiums. Additionally, this NJ marker consists of investor buyers who left the market creating unsold units and at the same time unsold units became rentals. Manhattan developers did not , in my opinion, keep their eyes on this historical transition from condominium to rentals and prepare for the exodus which is obvious in a receding economy. The Gold Cost increased its ferry and light rail services providing tenants living in the Gold Cost easy commutes to Manhattan in shorter time period that uptown rentals and more so these New Jersey communities developer mirrored lifestyles with the ability to take a short ferry trip to also enjoy Manhattans' life styles and much less a drain on their income.
Manhattan rental markets have a strong competitor in the Gold Coast which I believe they either misunderstood or ignored. Now a third group of foreign investors and tenants are moving into the Gold Coast markets as their are deals on both waterfront condominiums and rentals which also impacts Manhattan markets with vacant condominiums coming on line for rental also impacting and competing with Manhattans rental market.
As always greed impacted sound investments that did not recognize that all real estate markets are cyclical. Land and constructions costs in Manhattan zoomed to ridiculous prices and Investors simply raised the rents believing that the increased would endlessly be absorbed by the tenants. Tenants for the most part do not negotiate their rents they just move. But the mindless greed captured the investors and developers all over America except for the few who understood the underlying market effects. Example; I advised my clients that change was coming in the market place and their response was to view me as the Medusa now after the market tanked it's how do I get out of this mess.
The real estate market, in my opinion, will continue to degenerate thorough 2009 and possibly 2010 as the flight to less expensive shelter in all price levels continues. Additional communities are planned to come on line in Jersey City estimated at approximately 10,000 units. If the soft market for condominiums continues into 2010 these units will most likely become rentals and will again impact and challenge Manhattan's rental market. Although, these units are not on the waterfront the light rail will provide easy access to Manhattan by subway and ferry making an easy and safe commute as well as the convenience of newark Airport minutes away.
As wealth and jobs decline Manhattan rental market, in my opinion, will suffer at the same rate of decline.
