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New rental report shows 60% drop in volume

Elliman CEO Dottie Herman

Residential brokerage Prudential Douglas Elliman today released its first-ever quarterly rental Manhattan market report, revealing an eye-popping 58.3 percent drop in rental transactions from last year as waves of unemployment battered the city.
    
The report, which tracked data about the rental market that has never before been published, determined that 2,346 apartments were rented in the second quarter of 2009, down from 5,624 during the same quarter of 2008. That drop coincided with a 17.5 percent decrease in the average rental price per square foot to $44.16, from $53.50 in the prior-year quarter. Meanwhile, the number of rental listings swelled by nearly a third to 7,290 from 5,658 in second-quarter 2008.

Though the rental market has been widely believed to be healthier than the sales market, the results largely mirrored the slowdown shown in recent sales reports, said Jonathan Miller, the president of real estate appraisal firm Miller Samuel, who prepared the report.

"The results this quarter were very similar to the purchase market," said Miller, who also prepares Elliman's widely watched sales reports. "We saw activity off by more than half, inventory is rising and prices are falling."

There was one bright spot amid the gloom. The report found a surprising surge in rentals during the month of June. Nearly 50 percent of rental transactions for the quarter took place in June, Miller said. In previous years, the percentage of sales was usually evenly divided between April, May and June.

Prices may be lower and incentives more plentiful, but summer is still the busiest time of year for rentals, and that hasn't changed, brokers told The Real Deal in a July magazine story.

The June surge probably doesn't spell a turnaround, but the uptick could be an encouraging sign if it's followed by several similar months of activity, Miller said.

"It's no secret that the economy has a ways to go and unemployment is still rising," he said. "What happened in June is not reflective of some new market. But it's very possible we could see a higher level of activity in the later part of 2009."

The average monthly rent of a Manhattan apartment was $3,839 in the second quarter, the report found, roughly the same rent as in the prior-year quarter, while the median rental price was $3,100, down 3.1 percent from $3,200 at the same time last year.

Miller said average and median prices have stayed largely the same in part because sales of large homes have suffered while many first-time homebuyers, anxious to take advantage of lower sales prices, have purchased studios and one-bedrooms. As a result, the average rental apartment is now larger than in the past.

Unlike residential sales, rental transactions are not publicly recorded. To produce the report, Miller gathered market information from both Elliman and his firm's databases. Miller said he has been gathering rental data for years in preparation for the report.

"This is something I've had on the back burner for a long time," he said. "As we're going through this economic period, the rental market should be covered. I just thought it was time."

Brokerages Citi Habitats and the Real Estate Group of New York, which recently merged with the Developers Group, also produce rental reports, but many of the categories that Miller measured — including average and median Manhattan rental prices, rental price per square foot, the number of rental transactions, days on market and listing inventory — have never before been reported to the public.

"This is a very comprehensive report," said Dottie Herman, the president and CEO of Elliman. "There are no other reports that even come close."

Known primarily as a sales firm, Elliman has turned more of its attention to rentals lately, with a new rentals division and Web site. The rental market report was the next logical step, Herman said.

"You have to have information today because people can get it all over," she said. "We're a real estate firm so we should be the ones to provide it."

Citi Habitats' quarterly report, which was also released today, similarly found that rental prices in each size category declined from the prior-year quarter, though the company does not publish price per square foot, transaction volume or overall average Manhattan rents. Citi Habitats found that the average rent for studios fell 8.3 percent from the prior-year quarter to $1,765, one-bedrooms fell 8 percent to $2,428, two-bedrooms dipped 11.3 percent to $3,448 and three-bedrooms saw a decrease of 11.4 percent to $4,637.

Elliman's report recorded similar drops, but found the average rent to be generally higher. According to Elliman, average studio rental prices fell 5.9 percent to $2,304, one-bedrooms were down 13.2 percent to $2,874, two-bedrooms slipped 4.4 percent to $5,018 and three-bedrooms dropped 7.5 percent to $8,849.

Discrepancies in the data likely arise from the fact that Citi Habitats' report only measures data from transactions at the firm, explained Gary Malin, the president of Citi Habitats. He said he doesn't view Elliman's report as competition because the reports use different methodologies.

"Obviously, the more information that's out there, the better," Malin said of Elliman's contribution to rental market reporting. "I'm always going to feel like our report is the most comprehensive because it's a much larger sample."

Miller said it's difficult to tell whose sample size is larger because the data is not public, though he said he is comfortable with his data, which measures "thousands of transactions, collected in a consistent way."

The Real Estate Group of New York, called TDG/TREGNY since the merger, does not produce quarterly reports.