Multifamily Metro Outlook:N e w Y o r k – Q 4 2 0 2 0

Overview:• The New York metro’s economy has entered its recovery phase, along with a slowdown in COVID-19 deaths and the loosening of restrictions on social

gatherings and indoor dining. Even the subway is set to resume 24-hour service beginning May 17, 2021. New York City is the nation’s largest apartment market,with approximately 2 million rental units, of which 47% are rent stabilized and 1.2% rent controlled. As a result of the pandemic, overall metro-wide rent growthover the past 12 months is negative but this is really a tale of two metros. Some submarkets have seen declining rents while others have seen a jump in rentgrowth. According to the NMHC Rent Tracker, New York reported one of the lowest overall rent collection levels for the week of March 6th, at 93.6%, which isonly slightly down from a year ago’s 96.2%.

• Job losses in New York City proper between February 2020 and February 2021 totaled 635,000 jobs, or a decline of -13.6%. The hardest hit sectors in the citywere: Accommodations, with a year-over-year employment decline of -71%; Arts, Entertainment & Recreation down -51%; and Food Services & Drinking Placesdown -49%, between February 2020 and 2021.

• The New York Times estimates that about 5.0% of New York City residents left the city between March and May, and in “...wealthy, predominantly whiteneighborhoods like the Upper East Side, SoHo and Brooklyn Heights, the residential population dropped by 40 percent or more, while blocks with medianhousehold incomes of $90,000 or less saw little movement.” According to RealPage, Inc., during fourth quarter 2020 the metro suffered negative net absorptionof -23,229 units annually, worsening from -13,709 units just three months earlier.

Market Strengths:• Despite the challenges, the New York metro remains the financial capital of the world. Per capita income is high, and its 24-hour cosmopolitan lifestyle remains

attractive to a wide swath of people. Although much of that had been muted or even shut down due to the pandemic, many businesses are reopening, andsocial distancing restrictions are being lifted. As a result, people are expected to begin returning and that appears to be the case already. As more vaccinationstake place, the outlook is quite optimistic for returning tourists, albeit they are likely be domestic leisure travelers, who tend to spend less and not stay as long.

• Demographics are favorable for apartment rentals over the longer-term, with the overall metro’s key renting cohorts, namely Gen Zers and Millennials, currentlyat 25%, well above the national average of about 22%. However, older Millennials appear to be leaving the metro – and its rental sector – a little sooner thananticipated, due to the pandemic. Replacing those lost renters will take positive job growth but lower rents and generous concessions should also help.

Market Weaknesses:• Job growth for the metro ended 2020 down -10.2% but is now expected to end 2021 with an increase of 3.3%, which is double Moody’s earlier estimate of just

1.6%. While that won’t replace all the jobs lost, it is expected to provide the necessary footing for much of the metro’s multifamily sector resurgence from newhousehold formations helping to spur demand and absorption.

• Multifamily investment had already retreated due to the expansion of rent stabilization policies last year and was exacerbated in 2020 by the pandemic.Investors are far more wary, with annual multifamily property sales plummeting -36% in Manhattan, -39% in Northern NJ, and down a whopping -43% inWestchester as of 4Q2020 but “just” -25% in the NYC Boroughs, according to data from Real Capital Analytics.

Development:• There are more than 78,000 rental units currently underway in the New York metro and that is on top of the 29,243 that delivered in 2020 alone. Much of that

supply is class A market-rate units and despite the anticipated increase in job growth over the short term, supply is likely to outstrip demand for much of 2021.• Concessions are rampant and widespread. According to RealPage, as of 4Q2020, metro-wide concessions are at 45 days of free rent on average at 12.6% and

are being offered on nearly 34% of units. Brooklyn and Queens are still faring the worse, with a concession rate exceeding 14% or about 52 days of free rent.Outlook:

• The overall New York metro is expected to begin to see a slight increase in rent growth over the next 12 to 18 months. Rent growth is estimated to have beennegative at -1.5% as of 4Q2020 and -5.0% year-over-year. Rent growth is expected to take longer to recover, especially due to the ongoing delivery of newsupply, but class B and C should improve faster. The estimated average vacancy rate increased by an estimated 50 basis point to end the year at 4.5% and overthe short term is expected to remain fairly elevated due to the amount of new supply. The full, longer-term impact of the expansion of rent stabilization on thelocal multifamily sector over the next several quarters, as well as post-pandemic, remains to be seen.

• Although this is the nation’s largest metro and apartment market, and job growth is expected to turn positive in 2021, the destruction of jobs, especially in thehospitality and entertainment sectors will likely take longer to recover. The governor’s announcement that Broadway will reopen in September is welcomenews and should give the local economy a much-needed boost before year-end. How quickly office workers return will have a big impact on local housingdemand, especially if commuters are hesitant to get back on mass transit. The outlook is now much sunnier than just a quarter ago: the vaccination rolloutappears to be gaining momentum and there is a sense of people wanting to return to their former lives. Local businesses, and landlords, are waiting to greetthem with open arms.

Source: Moody’s

Q4 2020 Q4 2025 New York(5-Year Annual Average Change)

National(5-Year Annual Average Change)

Population (000s) 19,870 19,968 0.10% 0.52%Households (000s) 7,419 7,668 0.66% 1.41%Renting Cohort (Ages 20-34) (000s) 4,155 3,988 -0.81% -0.26%Total Employment (000s) 9,007 10,121 2.36% 1.71%Median Household Income $83,619 $97,319 3.08% 2.83%Median SF Home Price $486,720 $654,854 6.11% 4.30%Net Migration -94,878 -61,305

Five Year Metro Area Growth Forecast

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Manhattan• RealPage is showing a dramatic decline in effective rents for Manhattan of -6.3% in 4Q2020 but that is an improvement compared to

3Q2020’s decline of -9.47%. Its short-term forecast is anticipating that effective rent growth here will remain negative for theremainder of 2021, declining by -9.0%. Our expectation is more optimistic that Manhattan rents will begin to see improvement earlierin the year and end the year at about zero. Volatility in the near-term seems likely, however, especially due to the amount of newsupply expected to come on line and because Manhattan has the most expensive rent levels. Vacancies appear to have peaked andshould begin to improve also ending the year on a slightly positive note.

• CoStar is estimating there was negative rent growth in 4Q2020 throughout most of the Manhattan submarkets, with an annualizeddecline of -4.6% in Midtown West (home to Hudson Yards), -3.8% in the Financial District, -4.7% in Murray Hill, -1.1% in the UpperWest Side and in the East Village. Only East Harlem showed positive rent growth of 0.4% for all of 2020, according to CoStar.

• Concessions remained at 2.0 months of free rent with owner-paid (OP) broker fees in Manhattan as of December 2020, compared tojust 1.4 months of free rent in December 2019, according to Elliman. Concessions with OP were available on 53.5% of all newManhattan leases, compared to 60.4% as of October 2020, and compared to just 40.3% of all new leases as of December 2019.

• Manhattan’s vacancy rate has been on the decline, according to Elliman, which estimates it stood at 5.52% as of December 2020compared to 6.14% as of October 2020 but still up significantly compared to 1.81% as of December 2019. Elliman’s estimated rentdecline increased to -10.8% year-over-year as of December 2020, bringing its estimated average rent for the submarket to $3,934compared to $4,412 a year prior.

Brooklyn:• Brooklyn has the largest share of apartments of the five boroughs combined, representing 30% of the rental housing inventory,

according to the 2017 tri-annual NYC Housing and Vacancy Survey Report. It also has the most supply underway, at more than 16,000units. This is expected to place pressure on fundamentals throughout 2021.

• Fundamentals are slightly better in Brooklyn, according to Elliman. As of December 2020, concessions and OP have declined slightlyto 1.7 months of free rent compared to 1.8 months in October 2020, and on fewer leases: 48.5% compared to nearly 51% in October2020, but still up quite a bit compared to 36% a year ago. CoStar is reporting similar trends, with most of the borough’s submarketsstill seeing negative rent growth. Downtown Brooklyn has seen a big improvement, with a -1.7% annualized rent decline in 4Q2020compared to a whopping -9.0% annualized rent decline back in 3Q2020. Bushwick is down just -0.6% and Flatbush remains nearly flatat -0.1%. Williamsburg has turned the corner with positive annualized rent growth of 0.6% as of 4Q2020 Southwest Brooklyn alsoescaped unscathed, eking out positive rent growth of just 0.1%, as of 4Q2020.

• Brooklyn remains more affordable, despite all the new supply, compared to Manhattan. Its average rental rate was $3,183 as ofDecember 2020, according to Elliman, which was down -6.7% from a year earlier. And that’s compared to $3,934 for Manhattan.CoStar data shows that Southwest Brooklyn is the borough’s bargain, at just $1,697 and Williamsburg the most expensive, with anaverage rent of $3,677 as of 4Q2020.

Queens:• Although larger in square miles than Brooklyn, Queens represents 25% of the total number of apartments in the five boroughs. And it

is cheaper than Manhattan and Brooklyn: The average rental rate in Northwest Queens is $2,689 as of December 2020, which is down-11% from a year ago’s average rent of $3,022, according to Elliman. And all the new supply that has delivered in Long Island City overthe past two years has finally outpaced demand: the concession rate in the Northwest Queens submarket was at 2.6 months of freerent as of December 2020 compared to just 1.8 months in December 2019.

• Despite all the new supply, Long Island City saw its average annualized rent decline by just -1.1%, according to CoStar, compared toan annualized a decline of -6.9% as of 3Q2020. Other Queens submarkets are also seeing improvement: Northeast Queens had a year-over-year increase of 0.2% and Southeast Queens had 0.7%, according to CoStar. South Shore Queens (which encompasses theRockaways) slipped a bit during 4Q2020 with annualized rent of growth of just 0.6% compared to 1.2% as of 3Q2020.

The Bronx:• The Bronx is faring much better overall, with positive rent growth across most of the borough’s submarkets. As of 4Q2020, the only

Bronx submarket with negative rent growth was Northwest at -0.3%. The other Bronx submarkets saw annualized rent growth ofbetween 0.4% and 0.7% during 4Q2020, according to CoStar.

• The East Bronx submarket, which includes the Co-Op City, Eastchester, and Pelham neighborhoods, also had relatively decentannualized rent growth of 0.4% during the quarter. This submarket is home to the Penn Station Access Project. The project’sexpansion of the New Haven rail line will bring four new stations by 2024 to the Bronx, including Parkchester, Hunts Point, MorrisPark, and Co-Op City. This should be a significant game changer in terms of multifamily demand here over the longer-term outlook.

Staten Island:• Staten Island is a small multifamily market, with only about 9,000 units, according to CoStar. There were only 13 new units delivered

here over the past 12 months, with only about 155 units currently under construction. As a result, year-over-year rent growth waspositive, at 0.4% as of 4Q2020, with the vacancy rate staying flat at 3.2%, the same as of 3Q2020.

• A dearth of multifamily development – and demand – keeps Staten Island’s fundamentals in equilibrium, further bolstering thepredominance of the single-family homeownership sector here.

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Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic and Strategic Research (ESR) Group included in these materials should not be construed asindicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affectsFannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, itdoes not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or theinformation underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Grouprepresent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Multifamily Metro Outlook: New York Q4 2020

Multifamily Economics and Market Research Team

Kim Betancourt, Economic and Strategic Research - Economics – Senior Director

Sources Used

• Moody’s Economy.com

• REIS

• CoStar

• Real Capital Analytics

• RealPage

• Dodge Data and Analytics SupplyTrack Pipeline

• Axiometrics

• CBRE-Econometric Advisors

• Yardi