In the world’s major financial centers – from New York to Toronto to London to Sydney – rents for inner-city apartments are falling. International students, who usually drive demand, are stuck at home, and young tenants – the most mobile group – are finding fewer and fewer reasons to pay more money to live where the focus used to be.
“You’d be stupid if you didn’t start negotiating lower rents now,” said Tim Lawless, director of research in the Asia-Pacific region at data provider CoreLogic. “The supply is high and the occupancy rate has fallen rapidly.”
Home office is becoming more and more popular – both with banks and technology companies or elsewhere. In addition, the quirky shops and bars that made life in a city fun lose their appeal in the Corona crisis. In many places this changes the preferences of where you want to live. And it changes the balance of power between landlords and tenants.
Christine Chung, 26, is one of those who know how to use it. She just managed to negotiate a nine percent rent reduction for the house she shares with three others in Sydney’s trendy Enmore neighborhood, about 10 kilometers from the city center. It wasn’t easy – the real estate agent spent most of the last five weeks dodging calls – before the landlord agreed to cut the rent from $ 895 a week to $ 810. Rents in Australia are usually quoted on a weekly basis.
“I’ll push for another rent cut at the end of the lease,” said Chung. “The market has changed.”
If you go to the green suburbs, the picture is different. Wealthy professionals who bet on never having to be in the office all day again are willing to trade a longer walk for more space and larger gardens. There, prices are rising despite the looming global recession.
NEW YORK
In Westchester County – a region north of New York with more than 20,000 acres of parkland – purchase prices for single-family homes have increased 16 percent year over year.
In contrast, Manhattan apartments are cheaper than they have been since 2013. The offers have tripled compared to the previous year, while the average rent fell by 11 percent – with the prices for studios falling even more sharply.
Since the offices are still barely populated and life is no longer as pulsating as it was before Corona – venues like the Broadway Theater will remain closed until May – the most expensive part of the city is losing some of its appeal.
M. Christine Boyer, professor of urban planning at Princeton University and herself a landlord, says she can sense change too.
“Perhaps the fall in prices will bring about a fairer distribution of residential properties,” said Boyer. Nonetheless, she expects the city’s appeal to continue. “We love cities, we love to meet.”
SAN FRANCISCO
The downtown San Francisco skyline. Although the region has shaped millionaires, it has also sparked a housing crisis that has forced some Silicon Valley workers to live in rented campers parked on the city streets.
Now that technology firms are telling employees that they should – and possibly can permanently – work remotely well into the next year, rents are falling rapidly.
The median monthly rental for a studio in San Francisco fell 31 percent year over year to $ 2.285 in September, compared with a national decline of 0.5 percent, according to Realtor.com.
TORONTO
In downtown Toronto, the second largest financial center in North America after New York, apartments are piling up.
According to the research company Urbanation, rents fell by 14.5 percent in the third quarter compared to the same period last year. The properties also stay on the market longer – 26 days in August compared to 14 last year.
The immigration freeze and city dwellers’ desire for more space to weather the pandemic have weighed on demand. On the supply side, a large number of new completions and the switch by Airbnb operators to longer-term leases have also resulted in more supply on the market.
While resale prices are still above last year’s level, brokers are starting to report that some investors are selling units below market value in order to still generate sales before an expected slump.
In contrast, single-family home prices for Toronto are up 13 percent year over year.
“The entire housing system seems to be split in two,” said Aled ab Iorwerth, deputy chief economist at Canada Mortgage & Housing, the country’s national housing agency. “Risks arise here.”
LONDON
A crane stands over blocks of flats in London. In London, declines in international students and the number of well-paid overseas executives looking for temporary homes in the city after Brexit are pushing rents on the high end.
In the richest areas of the capital, rents fell by 8.1 percent in the year to September. That is the steepest decline in more than a decade, says realtor Knight Frank.
But that decline can also be seen in less affluent areas, with London being the only region in the country where tenant demand is falling, according to a survey last month by the Royal Institution of Chartered Surveyors. Almost seven in ten respondents expect rents in London to fall in the next three months.
“The number of applicants is noticeably lower,” said Mark Wilson, reviewer in London’s West End, to the RICS survey.
SINGAPORE
In Singapore, an island just 50 kilometers wide and smaller than New York City, the decline in rental volume isn’t so much about people moving further away. It’s more about them pulling away completely.
Much of the demand for central rental units in the city-state comes from expats who consider renting to be cheaper than buying because of the high stamp taxes for foreigners. Now Covid-19 has taken a lot of the glamor of expat life in Asia. Family and friends suddenly seem very far away and the once frequent trips to the region are restricted.
Singapore is also facing the worst recession in history and the government is putting pressure on companies to hire locally.
Despite a notable pickup in activity as some of the border restrictions were relaxed, the rental volume of private units declined 8 percent year over year, according to data from real estate portal SRX Property. Rents are 17 percent below their 2013 high. In contrast, home sales are at their highest level in more than two years.
More and more tenants are opting for shorter leases so they can move quickly if they can find a cheaper apartment, said Christine Sun, director of research and advice at OrangeTee & Tie.
SYDNEY
In Australia’s financial capital, new virus cases can be counted on one hand every day and the beaches fill up as summer approaches.
While the changes are not as dramatic as in some cities, things have changed. Rents are falling in the city, while bidding wars break out in the suburbs.
But the market also shows the strong appeal of cities. The vacancy rates in the central business district, which according to SQM Research reached a record high of 16 percent in May, have stabilized at around 13 percent, compared to around 5 percent before the pandemic. Closed borders and the absence of international students weigh heavily on demand.
The next chapter?
What happens next in the big cities of the world is open. It is questionable whether these price cuts lead to improvements in affordability – something politicians everywhere have repeatedly failed to achieve.
“You can’t forget about income,” said Chris Martin, senior research fellow at the City Futures Research Center in Sydney. “The crisis has fundamentally changed the economy.” This is especially true for retail and hospitality workers, who have seen their revenues cut virtually overnight.
Business owners could also choose to sit on vacant properties while waiting for the market to return, said Paul Chatterton, professor of urban futures at the University of Leeds. He found that there was a real way to convert unused homes into more diverse spaces.
Given the increasing signs of suburban living and homeworking, city governments should focus on the core cultural, artistic and political functions of cities, according to Chatterton. “You have to reorient yourself.”
However, you won’t find many predicting radical de-urbanization.
“History tells us that cities can be remarkably resilient,” said Christian A. Nygaard, a social economics researcher at Swinburne University of Technology. In Japan, for example, the changes in population distribution following the bombing of Hiroshima and Nagasaki in 1945 had already disappeared in the early 1960s. “Covid does not suddenly dissolve all investments that have been made in the central parts of our cities.”
One group to watch out for is international students, according to Nygaard. Your decision if and when to return will be a litmus test to see if the demand really shifts for good.
(Bloomberg/cash)
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