The Revival of New York City & Global Inflation

June 23, 2021
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The revival of New York City

During a ceremony at One World Trade Center last week, New Yorkers welcomed the lifting of nearly all remaining Covid-related restrictions in the state. The entire evening was like a victory declaration after a long war. 

The City is indeed battle scarred but the wounds are healing quickly. The state has now vaccinated 70% of its adult population. Traffic is close to pre-pandemic levels. Restaurants are crowded, flights are packed – even Yankee Stadium is back at full capacity. 

Cities were predicted to be a major casualty of the pandemic, but everywhere you look - whether it's attendance at office buildings, or the migration of people from urban centers - what could have been a great reset looks a lot like business as usual. 

And the read through to property markets is already showing. Following three years of softening prices, the prime residential market in New York City is on the cusp of a rapid recovery. Bidding wars are increasingly common and city-wide inventory, though still nominally above the long run average, has declined 23% since late summer. Robust sales activity will eat into that further. First quarter sales were just 4% shy of the long-run average 

You can read more from Liam Bailey, Knight Frank’s Global Head of Research, on New York's revival in Prime Resi this morning. While Knight Frank’s current forecast has prime property prices in the city ending the year flat, Liam is beginning to suspect a return to growth is now more likely.

Renting  

Blackstone yesterday announced a $6 billion deal to buy Home Partners of America, a company that owns 17,000 single family rental properties in the United States. 

Investors have for several years been flocking to purchase both single family units and purpose-built multi-family blocks in both Europe and the US, due to a range of factors that include a search for diversification and exposure to a range of demographics offered by owning thousands of individual units. It's clear other draws, including declining home ownership due to rising house prices, have grown more acute during the pandemic. 

It's also becoming increasingly clear these markets provide virtually crisis-proof income streams. In the UK, for example, monthly rent collection across the Built-to-Rent sector averaged 96% between March and December 2020. 

The Blackstone deal capitalizes on other pandemic-related themes, namely swelling demand among consumers for larger, family homes. Institutional investment in the UK rental market has so far been largely focused on blocks in key cities. The single family market, though nascent, is likely to grow rapidly over the medium term - see Apache Capital's May launch of its single-family housing platform Present Made

Global inflation

Last week the Federal Reserve significantly raised its expectations for inflation this year. Members of the Fed's policy committee now expect two interest rate hikes in 2023, after the Fed said in March that it saw no increases until at least 2024. 

That came hours after it emerged that the UK's consumer price index leapt to 2.1% in May, outstripping the Bank of England's 2% inflation target for the first time in two years. Sterling slipped below $1.40 and the euro slipped to $1.19. 

Housing bubbles

Bloomberg's interview with Blackstone president John Gray tackles surging house prices, spiking build costs and cheap mortgages in the US. Despite worsening affordability the housing market, according to Gray, isn't showing the typical warning signs of a bubble - too much leverage, too much capital, and too much building, he says. 

He's also bullish on cities, and suggests there will be a “rediscovery” of cities such as New York and San Francisco, fueled by immigrants, creativity, entrepreneurship and technology.

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