For the first time in New York’s history, the average rent in Manhattan reaches $5,000 per month while the occupancy rate drops below 40%.
How Folks Are Reacting to Manhattan’s $5K Rental Rate
Rent has become too expensive at this point, and tenants are making their voices heard about the issue. The average rent for a Manhattan condo or coop went up significantly to $5,058 in June 2022, according to real estate company Douglas Elliman. The June rate represents a 30% increase from a year ago. The median rent for the same month also went up to $4,050, a nearly 25% jump from June 2021 rental rates.
There are two main reasons why the skyrocketing rental rates came about. First, NYC is home to some of the most expensive real estate in the country. Nearly 40 NYC neighborhoods have already surpassed the $1 million median property price point even as the overall median for the city went down to $755,000.
Second, many people are moving (back) into Manhattan. There is an increase in the number of Millennials and Gen Z youngsters moving in even though remote work arrangements are still in place. They prefer to live in the big city for the nightlife and the culture even if they don’t need to go to the office.
These are the two main reasons why the average rent in Manhattan has skyrocketed. On the flipside, rent prices going through the roof are also forcing people to move out of Manhattan as they can no longer afford it. As a result, occupancy rates fell below 40% in June.
According to CNBC, despite the current situation, real estate investors are scurrying for Manhattan investment properties. Even if an investment property costs more than $1,000,000, investors are keen on buying in hopes of getting in on the action.
How Manhattan Became Popular for Renters
Manhattan has always been a popular place for renters. Pre-pandemic, it was one of the wealthiest NYC boroughs with the densest population. As the heart of the Big Apple, it served as the commercial, financial, and cultural hub, attracting people of all kinds of backgrounds.
It has a certain appeal that attracts visitors and migrants. Plenty of folks wanted to reside in Manhattan and try to make it in one of the most popular (and expensive) cities to live in. Tourists flocked to it for the numerous attractions it offers.
However, at the height of the pandemic, a lot of people decided to move out of NYC and into more affordable neighborhoods. It caused the average rent to decrease significantly in the Manhattan area. During the pandemic, Manhattan’s average rent dropped by 22%. To compare, Brooklyn’s rates only went down by 11%. By November 2020, the median rent for Manhattan bottomed at $2,743.
Living in Manhattan was now within reach for those who wanted to live there but could not afford it. The pandemic opened up possibilities for them. It caused an unexpected influx of renters into the area. Sure, lots of people did go out of state, but countless others took advantage of the lower rental rates. It somehow balanced out the occupancy rate in Manhattan.
Those who were already residing in Manhattan during the pandemic also took advantage of low rental rates to move into better places. It led to a musical chair of sorts within the borough, with lots of people moving on up.
Is Manhattan Still a Good Location for Rental Investment?
As far as rental properties are concerned, real estate professionals and investors have different takes on Manhattan. Given the latest news about its record-high rent and declining occupancy rate, investors don’t know exactly how to feel about the situation.
On the one hand, the high rental rates give them an excellent opportunity to earn bigger on traditional rental properties. On the other, the significant decrease in occupancy rate takes away from the income-generating potential of the neighborhood.
Now there’s also this matter about Airbnb properties. While New York is one of the top tourist destinations in the world, it does have very strict rules about vacation rental properties. For real estate investors keen on buying short-term rentals for sale in NYC, you might want to check the local Airbnb regulations.
To answer the question of whether it’s still good to invest in Manhattan rental properties, you need to take a look at the numbers. Your decision should not just be based on the average rent and occupancy rate. There’s a lot more going on that you should consider.
Manhattan by the Numbers
Let’s take a look at Manhattan’s numbers in relation to rental properties:
- Median Property Price: $1,784,627
- Average Price per Square Foot: $1,537
- Days on Market: 117
- Monthly Traditional Rental Income: $4,822
- Traditional Cash on Cash Return: 1.23%
- Traditional Cap Rate: 1.24%
- Price to Rent Ratio: 31
- Monthly Airbnb Rental Income: $3,366
- Airbnb Cash on Cash Return: -0.11%
- Airbnb Cap Rate: -0.11%
- Airbnb Daily Rate: $133
- Airbnb Occupancy Rate: 71%
- Walk Score: 98
The above numbers were taken from real estate website Mashvisor’s July 2022 data. What we have above are the average numbers for several Manhattan neighborhoods. While they do not include the entirety of Manhattan borough, the numbers aren’t too far from each other. This should give you a pretty good idea of this particular real estate market.
To learn more about how Mashvisor can help you find lucrative investment properties, schedule a demo today.
Looking at the numbers listed above and given the current record-high average rent and how people are responding to it, Manhattan may not be the most practical choice for investors. Sure, there’s the fact that you can get a higher monthly rental income. But if you consider the cap rate and cash on cash return, it will take you a long time to get a return on your investment.
The only good things about investing in Manhattan at this time other than the rental income are its high price to rent ratio and Airbnb occupancy rate. Keep in mind, though, that because of the skyrocketing rent, traditional rental properties are seeing rising vacancies at this time. So think hard before making any final decision.
Top 5 Cities With Better Traditional Rental Returns Than Manhattan
With how tough NYC regulations are on Airbnb properties, as well as taking into account its low Airbnb cash on cash return, it is a lot better to invest in properties for traditional rentals in Manhattan.
However, with occupancy rates dropping below 40%, you might want to look elsewhere. As the upward trend in rental rates continues, expect occupancy rates to decrease over the next few weeks, as well.
We’ve listed five cities that give you better overall returns compared to Manhattan. The list is sorted according to the following:
- Properties that cost below $1,000,000
- Monthly traditional rental income above $2,000
- Traditional cash on cash return of over 2.00%
- Price to rent ratio of above 10
The locations are arranged from the highest to the lowest monthly rental income. Here they are:
1. Islip, NY
- Median Property Price: $771,013
- Average Price per Square Foot: $2,398
- Days on Market: 90
- Monthly Traditional Rental Income: $3,580
- Traditional Cash on Cash Return: 2.88%
- Traditional Cap Rate: 2.93%
- Price to Rent Ratio: 18
- Walk Score: 37
2. Aventura, FL
- Median Property Price: $796,350
- Average Price per Square Foot: $446
- Days on Market: 77
- Monthly Traditional Rental Income: $3,546
- Traditional Cash on Cash Return: 2.57%
- Traditional Cap Rate: 2.62%
- Price to Rent Ratio: 19
- Walk Score: 71
3. Santa Ana, CA
- Median Property Price: $847,956
- Average Price per Square Foot: $572
- Days on Market: 47
- Monthly Traditional Rental Income: $3,542
- Traditional Cash on Cash Return: 2.57%
- Traditional Cap Rate: 2.60%
- Price to Rent Ratio: 20
- Walk Score: 97
4. Middletown, NJ
- Median Property Price: $701,230
- Average Price per Square Foot: $310
- Days on Market: 69
- Monthly Traditional Rental Income: $3,353
- Traditional Cash on Cash Return: 3.01%
- Traditional Cap Rate: 3.06%
- Price to Rent Ratio: 17
- Walk Score: 33
5. Norwalk, CT
- Median Property Price: $658,615
- Average Price per Square Foot: $345
- Days on Market: 60
- Monthly Traditional Rental Income: $3,349
- Traditional Cash on Cash Return: 3.76%
- Traditional Cap Rate: 3.83%
- Price to Rent Ratio: 16
- Walk Score: 66
Wrapping It Up
As an investor, you should give serious thought to investing in Manhattan, especially as the average rent in Manhattan continues to increase and occupancy rates decrease. The record-high rent is no indicator of investment success if you do decide to dive into it. Keep in mind that your occupancy rate will also be a major factor in how much you make per month on your rental property.
To help you get started with your investing journey, we recommend utilizing a real estate website, specifically Mashvisor. Mashvisor helps investors make the wisest decisions by giving them access to a massive database and several helpful tools. Its database covers almost every area of the 2022 US housing market and is regularly updated.
Mashvisor’s real estate investing tools will help you locate the investment property best suited for your needs. Tools like the Property Finder and Investment Property Calculator will make property search and investment property analysis a breeze. With a high Trustpilot rating of 4.6 out of 5 stars, you know you’re in good hands.
To get access to Mashvisor’s various real estate investment tools, make sure to sign up for a 7-day free trial today, followed by 15% off for life.