Manhattan Rents Hit a Ceiling as Record Prices Pause for Breath

Manhattan's rental market seems to be reaching its limit, with prices in August stalling during a typical hot month for new rentals.

Plateauing prices: The median rent for new leases in August was $4,400, the same as July's record, according to Miller Samuel Inc. and Douglas Elliman Real Estate. This stability in price comes after a significant 7.3% rise from the previous year and a staggering 35% increase since August 2021.

August leasing decline: Typically bustling with renters moving before the school year, August witnessed a leasing slowdown compared to May and June. New lease numbers dipped by 14%, totaling 5,025 for the month. Jonathan Miller of Miller Samuel observed the ongoing decrease in leasing activity as an indicator of the market nearing its peak.

Shifts in the Big Apple: While Manhattan's market is stabilizing, surrounding areas depict varying trends. Brooklyn rents saw a minor drop, with its median rental at $3,850 in August. On the other hand, northwest Queens observed a surge to $3,900, driven by renters being priced out of Manhattan and Brooklyn. Both these boroughs saw a decline of over 40% in new lease numbers from the previous year.

➥ THE TAKEAWAY 

Big picture: Miller believes landlords might slightly reduce prices due to decreasing demand, but significant cuts are unlikely unless prompted by a major economic shock. Even in Manhattan, a prime living spot, renters have their limits, indicating that every hot market, no matter the demand, has its boundaries. So, what's next for those priced out of the Big Apple? The plot thickens.

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NY Developer's Gamble on Las Vegas Retail

Las Vegas Boulevard is experiencing a shift from conventional indoor retail spaces to street-facing locales, all under the vision of NY developer Eli Gindi.

A new vision: Eli Gindi is introducing a novel retail experience on the Las Vegas Strip with his projects BLVD and Project 63. The two-story, 300KSF BLVD, complete with a 100KSF rooftop dining zone, adds a fresh twist to the iconic strip. His investments, especially in the Strip's southern section, are setting a new tourist trend.

Sporting hub: Las Vegas is morphing into a nexus for sports and entertainment. While T-Mobile Arena and Allegiant Stadium already lure visitors, the forthcoming Formula 1 race track and Oakland Athletics relocation up the ante. Gindi's BLVD is strategically positioned to tap into this growing clientele.

Fierce competition: Despite promising opportunities, the retail and dining market in Las Vegas is highly competitive, with an abundance of upscale options. Gindi's projects face the challenge of standing out among the competition and convincing visitors to venture onto the Strip for shopping and dining. The success of a retail center depends on more than just attracting customers—it also relies on a viable financial model, including land prices and cashflow.

Beyond retail: Acknowledging the Strip's potential, Gindi is aiming for more than just shopping with BLVD and Project 63. By bringing in tenants like the Museum of Illusions and offering rooftop dining, these ventures seek to offer unparalleled experiences, distinguishing themselves from conventional retail.

➥ THE TAKEAWAY

Gindi's gamble: Eli Gindi's investment in street-facing retail on the Las Vegas Strip represents a bold move to capitalize on the city's transformation into a sports and entertainment destination. BLVD's innovative concept and strategic location near major venues position it for success, but competition and the need for unique customer experiences present ongoing challenges.

📖 Read: Despite pockets of economic slowdown, consumer spending, a significant driver of GDP, remains resilient.

▶️ Watch: Dani Romero of Yahoo Finance joins Rachelle Akuffo to discuss how banks may face losses up to $2.5B due to distressed CRE.

🎧 Listen: In this episode of Commercial Observer's Back Story, the team explores declining debt originations and the shrinking number of lenders while analyzing insights from Newmark's Q2 report.

NYC Inches Forward, While TX And CA Retreat

Despite expectations for a significant post-Labor Day return to office trend, office occupancy in major cities fell short, signaling another setback for the beat-down sector.

The Sleeping Apple: Despite numerous, high-profile return-to-office initiatives from big-name companies like BlackRock (BX), Meta (META), Robinhood (HOOD), and Zoom (ZM), NYC's post-Labor Day return to office was smaller than expected, with a modest 4.3% increase to 42.5%, falling short of last year's post-Labor Day return of 49%.

Labor Day blues: Dallas, Austin, and Houston all saw a drop in office occupancy rates from the Wednesday before Labor Day to the week after. Dallas saw the largest decline at 2.1%, reaching approximately 52% occupancy. Despite Texas leading the nation in return to office, these declines were not anticipated by office landlords working to maintain property values.

Falling figures: Austin's occupancy dropped to nearly 58%, while Houston was just below 60%. In California, San Francisco's post-Labor Day occupancy decreased by 1.5% to 40%, while LA experienced a 1.2% drop, falling just below 48%. And in Chicago's metro office market, occupancy declined by 0.7 points, settling at 50.6%.

➥ THE TAKEAWAY

The struggle is real: Across the ten cities tracked by Kastle, average occupancy last week was 40%. Despite hopes for a significant return to work, the reality of office occupancy is not aligning with expectations, posing challenges for office landlords and stakeholders. Since the post-Labor Day return-to-office push fell short of expectations, uncertainty continues to trouble the office sector.

Although the overall CPI went up in August, it was not driven by rents or shelter costs, which have been steadily declining since their peak in March. And CPI Rent is expected to return to a more typical level by early Spring 2024.

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