Rental activity down 60 percent, report shows

Jonathan Miller of Miller Samuel and Gary Malin of Citi Habitats

The rental market in the third quarter saw a steep drop-off in activity from the same period last year, according to a quarterly Manhattan rental report by Prudential Douglas Elliman, as well as continued price drops.

The report estimated that the number of rentals deals in Manhattan has plummeted 58.9 percent in the third quarter from the same period of 2008, though it increased 8.7 percent from the prior quarter.

“We’re seeing the market remain weak and probably will remain weak going forward in the next year,” said Jonathan Miller, the CEO of Miller Samuel and the preparer of the report.

The report, which tracks rental data from Elliman, the Real Estate Board of New York, the Realplus listings database and other sources, tracked 2,346 new rentals in the third quarter, compared to 6,208 in the third quarter of last year.

Miller said the steep decline in activity is due to a “tremendous amount of renewal activity,” as landlords work hard to keep their tenants with concessions and rent decreases.

“Landlords are being very aggressive in tenant retention,” Miller said. “They’re negotiating, making offers of lower rent before tenants have even asked.”

He noted that activity did improve over the summer, just as it did in the sales market, but the improvement wasn’t as noticeable as in the sales market, where the number of transactions jumped 45.6 percent between the second and third quarters of 2009. That’s because many of the recent sales have been to first-time homebuyers — spurred by low prices — who otherwise would have rented.

“We did see activity bump up a little from the second quarter, so that was encouraging,” Miller said. “But it was not at the pace that we saw in the sales market.”

Rents also continued to fall in the third quarter, the report found.

The average Manhattan rental price declined 1 percent to $3,759, from $3,796 in the same period last year, while the median rental price was $2,950, down 7.7 percent from $3,195 in the prior year quarter.

Effective rents are likely even lower, since the report does not take into account widespread concessions such as a month of free rent, Miller said.

High unemployment has also slowed activity, he said, and the market is also being hurt by an increase in inventory. The report found 6,527 apartments available for rent, 5.4 percent more than 6,191 in the prior year quarter but 10.5 percent less than last quarter.

The increasing supply of rental apartment is due in part to failed condo projects turning into rentals, and owners deciding to rent their apartments for a year rather than selling in a weak market, he said.

Miller’s quarterly sales reports are the industry’s most closely watched. In the second quarter of 2009, he introduced his first-ever market report for the notoriously non-transparent rental market.

Unlike sales transactions, rental information is not publicly reported, he noted, so it’s very difficult to get accurate data about the market. His estimate of 2,549 transactions is not intended to reflect the total number of rentals that occurred, he said, but rather to provide a consistent way of measuring market trends over time.

“It’s intended to be a cross-section of the overall rental market,” he said.

Already, the attention surrounding his report may be helping to make the rental marketplace more transparent.

Citi Habitats, the city’s largest rental brokerage, has released rental market reports for years, but never gave statistics about transaction volume. After the release of Miller’s much-hyped first rental report, however, Citi Habitats in late September released a report saying it had done more than 5,700 transactions between May and August of 2009. Then, when it released its third-quarter report, it included data for the first time about the number of transactions, saying the company had done more than 3,800 rentals in the third quarter, approximately 500 more than in the same quarter of 2008.

Gary Malin, the president of Citi Habitats, said he has “always wanted to” release transaction information, and that the decision was not a direct reaction to Miller’s report.

In explaining discrepancies in the data, Miller said Citi Habitats, which uses only its own transactions data for market reports, said the firm is likely using different measurement parameters than he is.