Equity Residential’s outlook on its New York rental market continues to look gloomy, with the real estate company on Wednesday bemoaning falling rents and rising concessions in the Big Apple.
While most other markets in the country, especially Los Angeles, are strong, the real estate investment trust expects its revenues in New York to fall by 1.8 percentage points in 2017. Same-store profits had fallen by 3.1 percent in 2016. The culprit: growing supply thanks to new construction, and mediocre growth in high-paying jobs.
“Financial services are contracting and tech job growth has stalled,” the company’s COO David Santee said in the fourth-quarter 2016 earnings call, adding that most new jobs in New York are in low-paying sectors like retail and hospitality. That drives rents down and concessions up.
The company has budgeted $4 million for concessions in 2017 in New York – a figure no other market comes close to (it budgeted around $90,000 for Washington, D.C. and $80,000 for Seattle). “We are already hearing some crazy stuff like three and four months free on 12-month leases,” Santee said, speaking of the market more broadly.
The company also set aside money for gift cards, but will only use it when “absolutely necessary.”
“The first line of defense is rates, second concessions and last gift cards,” Santee said.
The Sam Zell -led company didn’t come close to reaching projected targets in New York during 2016. And in October, company leaders told investors there was a “high probability” of negative revenue growth in 2017.
Earlier Wednesday, The Real Deal reported that some observers are growing concerned about the overall multifamily market’s stability. Between December 2015 and December 2016, the average apartment rent fell by 2.5 percent in Manhattan and by 3.8 percent in Brooklyn, while concessions rose dramatically, according to Miller Samuel data.