Record apartment vacancy rate predicted for next year

By Adam Pincus | December 24, 2008 06:00PM

In 2009, the vacancy rate in market-rate rental apartments will rise to its highest level in at least 28 years, as mounting job losses drive renters from the city, a new report from commercial real estate services firm Marcus & Millichap predicts.

The vacancy rate will reach 4.7 percent, topping the previous record of 4 percent in the fourth quarter of 2003, the firm determined in its 2009 National Apartment Report. The firm has been tracking apartment vacancies in unregulated apartments since 1980.

The rate of rental vacancies has been rising since reaching a recent low of 2.1 in 2007. The report puts the 2008 vacancy rate at 3.4 percent. The data is based on a survey of market-rate, one-, two-, three- and four-bedroom apartments in Manhattan, Brooklyn, Queens and the Bronx.

The rental market will continue to be weakened by job losses, which could reach 94,000 in New York City in 2009, a loss of 2.6 percent, the report said.

The report’s authors said that there would be fewer vacancies in more established residential areas such as the Upper East and West sides and the Village. But areas that are more on the fringes, where an increasing number of units are being built, will fare worse.

“Supply concerns will mount in Long Island City, Midtown West, the Financial District and southeastern Harlem, where deliveries will be elevated and the threat of shadow rentals persists,” Edward Jordan, regional manager of the Manhattan office of Marcus & Millichap, said. A shadow market exists when homeowners turn to renting out their units because they cannot sell them, which in turn increases the rental apartment stock.

Despite the rise in the rate of vacancies, prices in large, market-rate buildings will rise, albeit a small 2.1 percent, to $3,006 per month, according to the projection, from an average of $2,944 this year.

The increasing vacancy rate will be pushed up by construction; the number of apartment units constructed will rise to 2,500 next year from 1,997 in 2008, according to the report.

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