Manhattan residential gets a qualified thumbs-up

Real Estate Weekly, March 24, 1999 by Neil Binder

The early signs are that 1999 will be a continuation of 1998 for Manhattan residential real estate, although this must be said with a certain degree of reservation.

My enthusiasm is tempered in part by the history of cycles plaguing real estate for as long as records have been kept. Since these cycles tend to be in spans of eight to 10 years, and if history is a guide, we should be forewarned because, by my count, 1999 is the 10th good year for Manhattan real estate.

However, the fundamentals remain very exciting for the upcoming year. Construction is still lagging, so the supply/demand relationship still favors the seller in Manhattan home sales. This heated situation is exacerbated by the national perception that New York is the place to be. Tourism is way up, crime is down and unemployment has been steadily declining. Add an explosive stock market and the recipe is pretty exciting fare.

Where are the special opportunities in the new year where appreciation potential might exceed general trends? We see the West Side Corridor, running from Chelsea up Eighth Avenue to Lincoln Center, as the place to watch. The Times Square Improvement District has become an anchor spreading in all directions, and Lincoln Center area improvements have altered that landscape so dramatically that market conditions are bound to explode in the near-term.

We also believe that the rental market, which has been tight for many years, will show signs of loosening as a result of the large number of rental properties coming on line - particularly along the Eighth Avenue Corridor. We do not believe this will mean declines in rents, however, as the underlying cost of operations do not justify a downward adjustment. Rather, we see more availability on the horizon.

Product availability for home sales has become more severe. In 1998, smaller apartments exploded in price. In 1999, this element will be more tempered as a result of the "buy-vs-rent" comparative picture.

Leveled rent will keep prices somewhat under control. In the middle-market segment, between $250,000 and $750,000, the pricing picture should be very aggressive. There is simply an expanding number of customers without expanding supply.

I can see a basic two-bedroom in an average East Side location selling for $500,000 in 1999. I can see a basic three-bedroom in this same area going for $900,000. For high-end apartments in excess of $1 million, the market has very limited product. This will not change, because very few people in high-priced apartments are moving.