(Bloomberg) -- Condo sales are surging in New York City. But fewer of those buyers are tapping a once-popular investment strategy: leasing out their units for income.
The idea fell out of favor as rents dropped during the pandemic amid a mounting pile of apartment vacancies. Of all New York City condo units purchased in 2020, just 2.7% were listed for rent within six months of closing, according to data compiled by StreetEasy. In 2017, the share was a record 11%.
“It’s a strategy that has a lot of risk right now,” said Nancy Wu, an economist at StreetEasy. “Renting it out is very notably not-profitable because of how much rents have been dropping.”
Landlords have struggled to keep units filled since the pandemic shuttered offices and sent New Yorkers scurrying to the suburbs for more work-at-home space.
Owners spent the past year discounting rents and upping incentives like free months to draw in tenants. Still, the number of empty units on the market has remained discouragingly high. In June, despite a 38% drop from the previous month, there were 11,853 available apartments in Manhattan alone.
“No investor wants to go up against a landlord who has a hundred or 200 vacancies,” said Stephen Kliegerman, president of Brown Harris Stevens Development Marketing, who oversees sales in new condo buildings. “They think, ‘Great, I have to give away six months free, well then why am I buying this now?’”
Some investors have started stepping back into the rental game as Covid infections decline in the city and employers plot a return to the office, pushing some workers to once again seek out urban homes to avoid a long commute. About 5.6% of all condo sales through June this year ended up being listed as rentals, StreetEasy said. They’re hitting the market in less-pricey locations that typically appeal to university students and young professionals.
The Vandewater, a newly built condominium near Columbia University in upper Manhattan, had New York’s biggest share of condos-turned-rentals in 2021, with 10 of this year’s 28 sales -- 36% -- being listed for rent by their new owners, StreetEasy said.
That includes a one-bedroom unit that sold there in April for $1.3 million. It was listed for rent in May at $4,900 per month, according to StreetEasy. The 733-square-foot apartment -- in a building with a pet spa and a heated pool -- found a tenant at the end of June after the asking rent dropped to $4,750.
In Manhattan’s Financial District, 28% of condos sold this year at 130 William St. were quickly listed for rent. The median rent being sought for units at the luxury tower with Hudson River views is $5,500, compared with the $3,500 median for the neighborhood at large, StreetEasy said.
Rents plunged during New York’s pandemic shutdown last year. Now, the attractive pricing in a reopened city is drawing tenants back into the market. In June, 9,642 new leases were signed in Manhattan -- the most for any month since 2008, according to appraiser Miller Samuel Inc. and Douglas Elliman Real Estate. Brooklyn saw 2,141 new leases, accounting for the second-best month on record.
The demand means that more individual condo buyers might soon aspire to become New York landlords again, Kliegerman said.
“They didn’t know how long it would take for the market to come back so they just held off,” he said. “We definitely see the investors coming back.”
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