With the economy on the rocks, an increasing number of brokers are saying that the Manhattan rental market is softening. A recent report by the Real Estate Group New York showed that doorman buildings are performing the worst as buyers head for more no-frills options, though it also found that the overall market was faring better than in previous months. [Since then, the brokerage issued a new monthly report for March, showing further weakening in the market. It found a drop in rents of about 1 percent for one-bedroom apartments and a drop of almost 2 percent for two-bedrooms in Manhattan.]
In a recent Webcast interview, The Real Deal’s Jen Benepe spoke to Daniel Baum, chief operating officer at the Real Estate Group New York, to get the full story. The residential brokerage said its monthly market studies show a cross-section of data from thousands of rental listings below 100th Street and under $10,000.
Log on to www.therealdeal.com to see the full interview. And log on every Monday and Wednesday for a new edition of The Real Deal’s weekly Webcast, featuring a recap of each week’s breaking real estate stories and exclusive interviews with industry insiders.
The Real Deal: Your last few reports point to some weakness in the rental market, but your February figures said that the rental declines had finally slowed. What’s going on there?
Daniel Baum: What we found is, typically on a cycle, in January we would see a rebound in rents from a lull that happens in November and December. And this year, we didn’t find that to be the case. So in February when we saw that rebound happen, we thought that was quite notable. Had we not seen that happen, we would have a much less optimistic feeling going into this year’s rental season.
TRD: Despite the fact that rent declines are slowing, you did see some notable trends. Most notable is that rents are down in doorman buildings Manhattan-wide — even in coveted areas like Tribeca and Soho — and they’re up at non-doorman buildings. What do you think is going on, and do you think this has any relationship to the economy?
DB: Yes, I think it speaks directly to the economy. The fact that people are shying away a little bit more from the higher-priced luxury rentals and looking more towards the non-doorman no-frills in order to save money is a good indicator of what’s going on in the economy and in the general consumers’ minds.
TRD: Doorman building rents are down overall. With so many units coming on the market, are we going to see landlords at doorman buildings scrambling to fill vacancies?
DB: What’s interesting is, if you looked at November and December, you would see that prices had actually come down dramatically already. And landlords had, as you put it, been scrambling to offer incentives to renters to come to their buildings, and to brokers to bring their clients to their buildings. A lot of them would prefer — rather than lower rents continuously — to simply offer concessions to the renter. And a lot of times, it works.
TRD: Let’s talk about some of those new luxury developments like 10 Barclay and 95 Wall Street. What do you think is going to happen to those types of developments?
DB: I think these developers build buildings based on the larger-than-the-immediate marketplace. I think when they look at the overall marketplace of Manhattan, they still see it as an opportunity to build rental properties. So, though rents may be down today, a year from now, two years from now, five years from now, they expect rents to go back up.
TRD: You note in a report that the Lower East Side has emerged as one of the most expensive neighborhoods for doorman studios. What happened there?
DB: Well, the Lower East Side has become kind of a frontier for new development. But with the development of the Bowery and new projects like the Ludlow, and all the new development going on in that section, it’s really raising the Lower East Side to another level. [But] the Lower East Side still presents a lot of fantastic opportunities for very reasonably priced rents as well.
TRD: That lag in January is obviously a little bit unusual. Is it a sign of uncertainty?
DB: The lag itself brings about uncertainty. I’ve seen that January usually shows us, or maybe you might even say foreshadows, what’s coming up, and when you see a rebound from November and December in January, it’s a very good sign. When you don’t see that, and the market’s lagging — and in February, you see that rebound a little bit — you think to yourself, ‘Is the rebound real, or is it that maybe it should have taken place a month ago and we’re just behind schedule?’ I think as we go forward in 2008, we’ll see as to whether this weakness is just a downturn that we rebound from quickly, or whether this goes on longer than just this year.