The Real Deal New York

Is the soaring rental market changing patterns?

Long-held beliefs about Manhattan vs. Brooklyn markets get turned around

November 01, 2014
By Brendan O’Connor

From left: Eric Hamm, Oliver Brown, Alex Saltalamacchia and Lauren Weiner

From left: Eric Hamm, Oliver Brown, Alex Saltalamacchia and Lauren Weiner

Pressure from New York City’s highly competitive condo arena is spilling over into the rental scene, and as a result, some long-held assumptions about the Manhattan versus Brooklyn markets are being turned on their head.

This month, The Real Deal talked to residential brokers with expertise in the Manhattan and Brooklyn rental markets to understand the impact of an influx of newcomers — would-be condo buyers priced out of the market by international buyers — on the rental market. The most troublesome result for renters: A lack of inventory is contributing to an exponential increase in prices, said Oliver Brown, a broker with CORE.

Sources report that pressure on the rental market is being released in several ways. In some cases, renters are shedding their Manhattan-centric perspective.

“Clients have become a lot more flexible in terms of where they will live. People have adapted more of a pioneering attitude. Areas that were considered ‘off-limits’ are now first-choice destinations for many people,” said Eric Hamm, senior managing director at Citi Habitats.

In another about-face, brokers report that Brooklyn is outpacing Manhattan in regards to rental prices; in some cases the Upper East Side is actually a cheaper option.

“Renters looking to Brooklyn for more space and a better deal are turning around and coming back to Manhattan. The notion of moving to Brooklyn to save money has ended, and price-shocked renters are finding better deals on the Upper West/East Side and Upper Manhattan than in many of the ‘prime’ Brooklyn neighborhoods,” Hamm said.

Brokers appear to agree that lower-priced rentals are moving fast as renters jump on deals quickly. Still, at least one broker expressed concern that rising rents may have a profound impact on the city for some people.

Lancelot Watson-Taffe, a salesperson at Bond New York, said, “I’m afraid if rents keep escalating, there will be no more affordable homes for regular people who are not so wealthy but still wish to experience the city as their home.”

Oliver Brown
Broker, CORE

What are you seeing in terms of prices for rentals in Manhattan and Brooklyn? Are you seeing the market heading up, down or sideways?

I think prices will continue to rise, especially for units located in popular neighborhoods and newer buildings. The lack of inventory throughout the market allows landlords to command higher prices.

What are you seeing in terms of inventory compared to six months ago, a year ago and two years ago?

We have much less inventory, contributing to the exponential rise in rental prices.

What differences are you seeing between the higher and lower ends of the rental markets?

Low-end rentals are immediately becoming occupied and have a short-term shelf life on the market. Proper pricing strategy is imperative in regards to the high-end rental market, as overpriced properties tend to linger.

The Real Deal and others have reported that some would-be buyers have been pushed into the rental market because sales inventory is so low. What are you seeing on that front, and how is that impacting your firm?

Managing both sales and rental transactions, I have not noticed a major influx of prospective buyers turning to the rental market.

Which Manhattan or Brooklyn neighborhoods are you seeing emerge right now?

West Chelsea, Brooklyn Heights and Williamsburg continue to grow in popularity on both the sales and rental fronts.

Which Manhattan or Brooklyn neighborhoods have been the weakest in the recent run-up?

I think the Upper East Side is experiencing a slump in rental activity. Its northern proximity and sometimes longer commute compared to other areas may be viewed as negative attributes among renters.

With the rental market so strong, are you seeing any concessions in the rental market? If so, in what types of buildings?

Owners of older buildings that are considered less desirable are paying brokers a one-month fee or offering tenants one month of rent free as a courtesy to entice potential tenants.

What are the biggest challenges to renting apartments in the current market?

Needing good credit and meeting all the qualifying factors of approval have been a hindrance for many renters, especially for young adults.

The Real Deal has reported that some renters are opting out of the soaring Brooklyn market and are looking for Manhattan rentals instead. What are you seeing on that front?

Brooklyn is certainly outpacing Manhattan in regards to rental prices. The Upper East Side is a cheaper alternative.

What are the most positive trends you’re seeing in the Manhattan/Brooklyn rental market today?

Beautiful finishes and amenities are becoming a more regular feature in new developments and recently converted properties. Landlords who spend or renovate using high-end finishes and materials see a greater return than those who don’t. The consumer is very well educated and expects a certain level of refinement.

Alex Saltalamacchia
Director of leasing, aptsandlofts.com

Are you seeing would-be buyers get pushed into the rental market?

That’s absolutely the case. Many buyers have been able to use this to their advantage, signing a one-year lease and “testing” the market, which may be very new to them. The trend we have seen is about 50 percent or so of our renters are coming directly from Manhattan, wanting to be a part of the Brooklyn scene.

Which Manhattan or Brooklyn neighborhoods are you seeing emerge right now?

Crown Heights and Prospect Heights have been on folks’ radar this year, but Prospect Lefferts is just now beginning to take off with new developments like 123 Parkside and 33 Caton Place.

Which are the most buzzworthy rental buildings coming to the market?

Two Trees’ Domino Project. Incredibly forward thinking design and development, ultimately connecting the north and south sides of Williamsburg.

Are you seeing any concessions in the rental market?

I’m seeing concessions only given during the initial lease up of a new development, to increase absorption.

What are the biggest challenges to renting apartments in the current market?

It’s always been and continues to be qualifying. Many say it’s harder to rent an apartment than it is to purchase one.

What are the most surprising trends you’re seeing in rental market today?

The increase of renters coming directly from out of state to the boroughs — excluding the tri-state area — accounts for roughly 13 to 15 percent of our business.

Lauren Weiner
Managing principal, Siderow Residential

What are you seeing in terms of prices for rentals?

In the short term, in both markets we are seeing the normal cyclical lowering of prices during the winter months. Many people are renting and waiting to buy because they simply can’t find what they’re looking for.

What are you seeing in terms of inventory?

Vacancy rates are pretty consistent with where they were two years ago. Rental inventory is slowly increasing.

What differences are you seeing between the higher and lower ends of the rental markets?

It’s a tale of two cities, with the higher-end units staying on the market longer and the more economical options moving very quickly. Most of the new construction has been extremely high-end, high-priced condominiums. With the exception of a few new buildings, there has not been any significant contribution to the number of luxury rentals in Manhattan. Given the limited inventory of high-end rentals, landlords are … willing to wait for rents that meet their expectations.

Which Manhattan or Brooklyn neighborhoods are you seeing emerge right now?

In Brooklyn, as Williamsburg and Downtown Brooklyn become more expensive, developers are seeking opportunities in Bushwick, Bed-Stuy and Crown Heights. In Manhattan, the Upper East Side has suddenly become the more affordable option for lots of people. The Lower East Side and lots of Downtown neighborhoods are as hot today as they were cold 10 years ago. In addition, there are massive developments going on, like the Seward Park [Urban Renewal Area]. And Hudson Yards will change the West Side waterfront dramatically in the long run.

Which are the most buzzworthy rental buildings you are most excited about?

We are very excited about Durst’s 625 West 57th Street, which has a tetrahedron shape that allows the building to take advantage of stunning views of the Hudson. It is located in an area that was not too long ago mostly industrial, with little residential and no luxury housing. The construction of this new building, along with the new luxury buildings built along Riverside Drive, and the success of Mercedes House nearby, demonstrates real estate developers’ belief in the future of the Far West 50s-60s. Additionally, the fact that Durst chose to build rentals and not condos signals they also believe in the long-term strength of the area.

Are you seeing renters opt out of the soaring Brooklyn market and look for Manhattan rentals instead?

We have a lot of clients moving from Brooklyn to the Upper East Side.

What are the most surprising trends you’re seeing?

Our firm is doing tons of deals for foreign investors. People talk about how many people are coming from China and other places to buy here, but to see the influx and number of deals we are doing first hand is really surprising.

What are the most positive trends?

In Manhattan, 6,000 new units are planned to come on the market in 2016. In addition, the conversion of multiple rental buildings, from the Upper East Side to Battery Park and Midtown, to condos. These units will provide new sales inventory for the 1,700- to 2,400-square-foot client who has been priced out of the market or simply can’t find inventory.

Eric Hamm
Senior managing director, Citi Habitats

What are you seeing in terms of prices for rentals?

The Manhattan and Brooklyn rental market remains strong, but recently we have seen a few cracks in the facade. The good news for apartment seekers is that we will likely see further, albeit small, asking rent reductions as we head into the holiday season, as landlords scramble to fill their vacancies before Thanksgiving.

What about inventory?

There are considerably more vacant apartments on the market now than before the summer season. In comparison to a year or even two years ago, we have at least twice the amount of rental inventory available in some neighborhoods, which is giving prospective renters a lot of options in their housing search. The fourth quarter is generally a great time to be in the market for rental housing and this year, even more so.

What differences are you seeing between the higher and lower ends of the markets?

Lower-priced apartments continue to move fast. Tenants looking to save money are jumping on deals. In contrast, we have seen a slowdown in the higher end of the market. Tenants spending over $10,000 a month are actively trying to enter the sales arena now that the market has rebounded. In some cases, landlords are responding by offering concessions of one to two months to attract these high-end renters back.

Are you seeing would-be buyers get pushed into the rental market?

The condo market is highly competitive, with international buyers driving up the prices in some cases. Buyers who get priced out are finding themselves purchasing co-ops or going back to their current landlords and renegotiating a new lease term until the market cools down. My brokers are making sure they have a “Plan B” in case their buyers get outbid and need to find a rental in the meantime.

Which Manhattan or Brooklyn neighborhoods are emerging right now?

In Manhattan, Morningside Heights and the West 120s are seeing big price increases with the expansion of Columbia University and the constant shortage of housing in the area. In Brooklyn, Bedford-Stuyvesant is just starting to see condo pricing above $1 million and the eastern end of Bushwick is really starting to take off.

Which Manhattan or Brooklyn neighborhoods have been the weakest?

The Upper East Side, especially east of Second Avenue, has typically offered great values for people. There is simply a lot of inventory in the neighborhood, so there always seem to be more vacancies there, especially when compared to many of the Downtown neighborhoods. Surprisingly, we have also seen vacancy rates increase in the East and West Villages. Landlords have begun to push rents in these communities to a level where people are beginning to decide they can find better values elsewhere.

Are you seeing any concessions in the rental market?

Lately we have seen an increase in concessions, with landlords offering them earlier than usual this year. Some newer developments have already increased their concessions to over a month-and-a-half broker fee and some type of free rent for the tenant.

Are you seeing renters opt out of the Brooklyn market and look for Manhattan rentals instead?

Renters looking to Brooklyn for more space and a better deal are turning around and coming back to Manhattan. The notion of moving to Brooklyn to save money has ended and price-shocked renters are finding better deals on the Upper West/East Side and Upper Manhattan than in many of the “prime” Brooklyn neighborhoods.

What are the most surprising trends you’re seeing?

Clients have become a lot more flexible in terms of where they will live. People have adapted more of a pioneering attitude. Areas that were considered “off-limits” are now first-choice destinations for many people. Overall, the New York City rental market has become less Manhattan-centric.

Lancelot Watson-Taffe
Salesperson, Bond New York

What are you seeing in terms of prices for rentals?

Manhattan and Brooklyn both witnessed extremely strong summers characterized by the typical bidding wars, multiple applications, renter hostility and even a few tears shed because a renter missed out on that “dream apartment.” As we approach the winter, prices haven’t quite decreased but there seems to be a bit more room for negotiation on asking rents. I’m seeing more of a lateral move in asking rents staying pretty consistent.

What about inventory?

Six months ago, we saw more and more inventory progressively turning over, as April marked the start of our busy season. A year ago, things were somewhat similar to current market conditions. However, this October seems to be a bit more active with renters and high demand.

What differences are you seeing between the higher and lower ends of the rental markets?

The higher end of the rental market has been pretty hot. Although the high-end rental market is for a distinct clientele, they seem to be pretty active this year snagging the apartments with the five-digit price tags. But since many people in the city are looking for more affordable rental homes, the apartments on the lower end definitely rent much faster.

Are you seeing would-be buyers get pushed into the rental market?

Many would-be buyers have moved to renting because of low sales inventory, being out-bid, and because they’re not finding what they think is worth an investment of hundreds of thousands of dollars.

Which Manhattan or Brooklyn neighborhoods are you seeing emerge right now?

Hamilton Heights, Washington Heights and Inwood are emerging neighborhoods in northern Manhattan that are hot on the map. These are great neighborhoods for the budget conscious, with great eats and phenomenal culture.

Which are the most buzzworthy rental buildings coming to the market?

The Nathaniel, located at 138 East 12th Street, came to the market this fall, one of the few luxury buildings in the East Village, which is awesome for the clientele that want to live in the East Village neighborhood without living with East Village un-renovated walk-up grunge.

Which Manhattan or Brooklyn neighborhoods have been the weakest?

I’m not sure there are any weak neighborhoods in Manhattan. There’s demand for every inch of Manhattan, if you ask me.

Are you seeing concessions in rentals?

Concessions are returning now in about 15 percent of the inventory, not because the market isn’t strong, but as a technique for landlords to keep rent rolls high even when there are fewer prospective renters. Smart landlords know it’s more effective to lose a month’s rent than to roll back prices that have taken years to get to current levels.

What are the biggest challenges to renting apartments?

The biggest challenge is getting people to understand prices are pretty firm. Paying a year upfront does not make a landlord want to drop the rent by hundreds of dollars per month.

What are the most positive trends?

The most positive trend I’m seeing in Manhattan is the fact that people are exploring and moving to different neighborhoods such as East Harlem, Hamilton Heights, Washington Heights, and Inwood. We’re seeing the emergence of a lot more businesses and attractions in these neighborhoods.

What are the most troubling trends?

The climbing rents are beginning to scare me. I’m afraid if rents keep escalating, there will be no more affordable homes for regular people who are not so wealthy, but who still wish to experience the city as their home.

  • Cheryl Gross

    By not taking the not so wealthy into consideration, we loose a very important part of our community. Artists are leaving NY in droves for more affordable cities. We are loosing our culture and making NY a playground for the rich

  • Streett

    Artists are moving to Williamsburg and other hipster neighborhoods

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