The pipeline of Manhattan condo units has grown steadily for the past three years since bottoming out at 12,602 units in the third quarter of 2013. But after a three-year climb, the number of condo units proposed, under construction and on the market has plateaued, according to a new analysis by The Real Deal. And the existing pool of condos could shrink even more as the tighter financing market weeds out projects deemed to be too risky in the current market. Some 14,500 units are expected to hit the Manhattan market between 2015 and 2017, which at the current absorption rate is between four and six years of excess supply.
The condo pipeline isn’t the only metric on the decline — the number of new residential permits issued is also dropping. Through the first half of the year, the city’s Department of Buildings issued construction permits authorizing just 634 residential units in Manhattan. (The DOB data doesn’t distinguish between condos and rentals, but its numbers provide an overall gauge of residential construction.) That’s a big drop-off from the nearly 10,000 units permitted through the same period in 2015, which hit a 20-year high partly due to developers rushing to beat the expiration of 421a.
So what does this mean for the condo pipeline? Experts are more or less pointing to the fact that developers have been building bigger units, generally averaging about 3,000 square feet, this cycle compared to the last. This means there are fewer units compared to the last. And because developers have focused on the luxury market in the last few years, there is pent up demand among mid-level and entry-level buyers. Time will tell if lenders push developers toward smaller, more moderately priced apartments. Should that happen, the total supply of condos could actually rise.