“This is Manhattan—people have always done whatever it takes to live here,” said Daniel Baum, co-founder and chief operating officer of the Real Estate Group New York.
Sacrificing comfort and personal space is an old exercise for most people living in Manhattan, especially for creative-class types or aspiring artists. For the past few years, living with any degree of comfort in Manhattan required one of two things: good family connections or a well-paying, white-collar job. But what will happen when even successful young professionals in fields like I-banking and corporate law lack the job security to pay monthly rent on a basic apartment?
This has been a morbid year on Wall Street, where hordes of successful and hardworking financial wunderkinds have lost their jobs due to some bad bets by profit-hungry bosses. Thousands of other workers will likely follow them out the door in the coming months; the city’s Office of Management and Budget predicts that 80,000 to 90,000 city office jobs will be lost between now and the end of 2009.
Generous year-end bonuses, which have seemed almost obligatory in the prolonged economic boom (over $33 billion total spread last year among the big investment banks, including Bear Stearns and Lehman Brothers), are likely relics.
But Manhattan rents so far have yet to react to this changed Wall Street dynamic. The bottom sags, but doesn’t drop out.
According to a report from brokerage Citi Habitats, average Manhattan rents increased dramatically from 2002 to 2006 for all apartment types. In those five years, studio rents jumped 20 percent, while rents for one-bedroom and two-bedroom apartments jumped by 23 and 32 percent, respectively. After reaching the all-time peak sometime in 2006 and 2007, rents have dropped slightly but stayed on an unprecedented plateau, far above where they were at the turn of the century.
Like every other real estate pro in Manhattan, Sofia Estevez, the senior vice president at Rockrose Development, is waiting to see where the rental market goes.
“It’s still too early to tell how this is all going to affect the market, we are sitting at the edge of our seats watching,” she said. According to Ms. Estevez, the company, which specializes in luxury rentals, is still at around 99 percent occupancy.
September was a normal month for Rockrose, but according to Ms. Estevez, “November is going to be the telling month.” By November and December, Ms. Estevez expects the new paradigm, if there is to be one, to come into focus. “Everyone is looking for bad news, and I don’t have any yet.”
“Obviously, when we are going through what we are going through, people are going to want to pause and reevaluate their personal situation,” Gary Malin, Citi Habitats’ president, said. And what will be the outcome of this reevaluation; where will people live, and how comfortably?
“People are going to be much more concerned with the price of their apartments now,” Mr. Malin said, “whereas people used to be focused much more on amenities until a short while ago. Now people aren’t really concerned with that.”
As a result of the subprime apocalypse, the average Manhattan renter’s expectations have been reduced, but rents are still too close to their historic high for most people, even Wall Street savants, to bear alone.
“I think that what you are going to find is that people who were comfortable in the past or were on the fringe of affordability may find themselves looking at more creative ways to afford their lifestyle,” Mr. Baum of the Real Estate Group said.
Squishing like clowns into car-size apartments is a familiar habit for many here in New York, but the seismic shift of this recession may be the universal reality that virtually nobody can afford to pay Manhattan rents on his or her own, and even our well-compensated friends smart enough to work on Wall Street will have to get a roommate.
A city’s worth of watchful eyes are waiting to see what happens next. “I think it’s fair to say,” Mr. Baum said, “that over the next two years rents will not return to the peaks that they were at a year or two ago—at least not in the short term.”
Well, it’s a start.