Wednesday, February 24, 2010

Change In Perception In The Wind

Just a quick note on current market conditions. Change is in the air.

Rental Market: What a difference a few months makes! Despite seasonal factors, which usually see inventory levels climb, I have seen the opposite this winter.  One reason is that over the past several years there has been a trend where landlords have been stacking their vacancies into the April-October period by writing leases longer than 12 months in order for them to end during the active time of year. However, I think lower rents and incentives have also helped New York retain more people than would be ordinary in a hot market. The bad news for renters is, it appears that the party is just about over. Sure, you can still get wild incentives in the Financial District and Far Midtown West, but established neighborhoods are starting to see better pricing power. I have encountered numerous prospective renters of late whose perceptions of a hyper-renter's market have been shattered. The fact is, inventory is actually down significantly over the past several months and landlords are slowly and cautiously wising up to the fact that they no longer have to give it away. Is there a huge rebound in pricing coming up? I tend to doubt it given the continued weak jobs picture and the surge of inventory that we will see in the spring, but it does look like the bottom has been reached.

Sales Market: It is night and day compared to 2009. It looks like we are setting up for a period where the perception gets ahead of the reality. As I have mentioned in the past, after a nuclear winter of sorts last year, things started to pick up last Spring and accelerate into the summer and fall. Most of the activity was concentrated to the under $1 Million market. The market has been changing this winter. First, the activity has begun to trickle up to the $2 Mil.-$4 Mil. segment. Second, while everyone is expecting great discounts (and many are getting them), the volume of prospects in the market and attending open houses has picked up significantly. There have been sporadic bidding wars, but at the same time, these are at the new normal (lower) prices, and most have kept their heads and budgets in check. It looks like a fairly stable market, but everyone should watch out for a marked increase in positive perceptions of the market near term. The reason is simple. Last year was so bad that this year's numbers are going to look explosive. It would not surprise me to see year over year increases in 1st quarter sales that seem amazing. I am sure that there are going to be some very dramatic and positive headlines, but remember, these are against numbers when the earth stood still! Nevertheless, perceptions can drive a market and these reports could result in an increase in pricing power in the short term. If the jobs picture and overall economy improves during that period (big ifs), that increase will stick. The best advice in this market bears resemblance to an old OTB commercial: "bet with your head, not over it."

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