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Will rental market get a new lease on life?

While rentals have historically benefited from a slowdown on the sales side, they too are showing signs of softening, and apartment hunters are looking for bargains.

Although rentals vary between neighborhood and apartment size, the question at hand for those who specialize in them is: What kind of lease on life will they have during this economic downturn?

For this month's Q & A, The Real Deal talked to brokers who said that while landlords are bending over backwards to maintain their monthly rental prices, they are offering more concessions than they were even six months ago in the form of a month of free rent, wiggle room on move-in dates and perks like free gym memberships.

One broker interviewed said he was seeing fewer single professionals with high-end monthly rental budgets in the $3,500 to $4,500 range. Others said more people are renting within their financial means now rather than stretching their checkbooks to live in luxury they can't quite afford, typical of renters in the past.

Brokers said that while the rental market is still going relatively strong, many of their clients expect bargains because news reports have painted the market as weaker than it really is. Scoring no-fee apartments are on the top of those wish lists, but, according to brokers, those deals are often hard to find in popular neighborhoods.

By near consensus, brokers said the best Manhattan rental deals are in the Financial District, which has more inventory than other areas and has been most affected by layoffs on Wall Street. Most of those interviewed said new rental buildings in the construction pipeline will get built, but they also predicted a slowdown in future construction because of changes to the 421-a tax abatement program. For more, we turn to our panel:


Barbara Fiorino associate broker, DJK Residential

What's going on with the rental market right now?

The rental market has definitely picked up in recent weeks compared to the early months of the year. Part of the recovery is due to recent college graduates coming to the New York market and landlords offering concessions such as one month's free rent.

There have been a number of buildings throughout the city that switched to rentals, so what are you seeing in terms of rental inventory levels?

There has been an increase in inventory as a result of buildings converting to rentals. We are seeing a lot of this in the Financial District.

What kinds of incentives are landlords offering in buildings to attract new renters, and how does that differ from a year ago?

Landlords are negotiating more than they were a year ago, but they are not dropping their prices. Many landlords will offer one month's free rent to make a deal happen. I was shopping with three recent college graduates this week, and we went to a place where they misread the price. They thought it was $5,195 and it was really $5,695. When the landlord saw that they were concerned with the price difference, they offered one month of free rent to solidify the deal, which would not have happened otherwise. The perception among renters is they can negotiate and get a better deal now than they could a year ago.

What types of rental units are in shortest supply?

Three-bedrooms are tough to find. Studios under $2,000 are also scarce.

Which neighborhoods have deals right now for renters? Which neighborhoods are overpriced?

The best deals right now are in the Financial District. I feel the West Village is still overpriced.

What's going on with the development of rental buildings?

We will see more new construction rental buildings in the future.

What's the most challenging thing right now about specializing in rentals?

Managing renters' expectations. While that's always the challenge of being a broker in this business, it's particularly challenging now as people read about a down market and think that deals are out there. Deals are not across the board, so renters need to be realistic about the New York rental market, which is still strong.

Daniel Baum COO, the Real Estate Group New York

The rental market got off to a weak start this year but seems to have leveled off. What's going on?

From the beginning of the year the impression was that it did get off to a weak start, but that was not due to anything more than seasonality. It recovered a little in May. [A report late last month found rents have stayed flat since the start of 2008, despite expectations that they would rise.]

What are you seeing in terms of inventory levels?

We're seeing inventory levels up for the most part. A lot depends on the neighborhood. Inventory levels Uptown are up significantly, while the trendy neighborhoods are down.

Are renters and landlords negotiating more now than they were six months or a year ago?

A year ago it was pretty much "take it or leave it." Now it's "this is what it is," and maybe there is some room for negotiation. Things have not become so dire that you can walk in and make a lowball offer and have it accepted. I know of one tenant who moved into a building, which comped the first year health club membership. Tenants might find little throw-ins like that.

How are doorman buildings doing compared to non-doorman buildings? Are renters growing more frugal because of the shaky economy?

We've found people are not reaching as far for the luxury apartments. Non-doorman buildings were up more significantly a few months ago … We see a lot more incentives at doorman buildings than at non-doorman.

Where are rental units in oversupply, and where is there a lack of inventory?

On the Upper East Side and the Upper West Side there is an abundance of inventory. That is also true for Battery Park, the Financial District and Uptown. And, in neighborhoods like Chelsea, Gramercy, Union Square and parts of the Village and Soho, inventories are modest. That's also the case for some parts of Midtown West and Tribeca.

What kind of impact have Wall Street layoffs had on the rental market?

There is no direct correlation at this moment — maybe at the end of the summer we'll have a better gauge of that.

Which neighborhoods have deals right now for renters?

In Murray Hill non-doorman two-bedrooms, we have seen prices come down this month so we would tell a renter that's a good place to look for share apartments.

Which neighborhoods are overpriced for rentals now?

There has been tremendous development and availability of rentals due to conversions and demand to live on the Lower East Side. It has been surprising how high prices have climbed even from a few years ago. It's the one that stands out in terms of prices that have risen most significantly and the fastest. But I wouldn't say it's overpriced.

How has the current rental market impacted commissions?

I don't think it has really changed commissions, except that there are a lot more no-fee apartments on the market. The Internet has changed the market because a lot more apartments are rented to consumers by owners, so that may affect the commission more.

Have you seen attitudes change among renters and landlords because of the current state of the rental market?

The renter perspective is to look for no-fee first, until they get frustrated as many do and come back to the broker. Because of greater inventory, owners are looking to brokers for guidance on pricing and marketing.

What's the most challenging thing right now about specializing in rentals?

Years ago when I was an agent, tenants came to us because we had the listings and they didn't. The Internet has completely changed that because you can go directly to the owner. The days of generating commissions simply because you have information on availability is past. Now you have to provide a service. And there are many agents that will not make it in this market.

Alex Saltalamacchia director of leasing, Aptsandlofts.com

There have been a number of buildings throughout the city that switched from condo to rental, so what are you seeing in terms of inventory levels?

We have seen the condo-rental switch [in Brooklyn] over the last 12 months or so, but on a much more limited basis than you would imagine. Aptsandlofts.com has completed conversions at 133 Water Street, 99 Gold and 756 Myrtle [in Brooklyn]. There has been talk of others following suit, but most developers just cannot afford to do so. Williamsburg will certainly begin seeing more new construction rental product within the next 12 to 24 months.

Are renters and landlords negotiating more now than they were six months or a year ago?

Some landlords are more anxious than others and will negotiate rent in order not to lose a month's rent, while others, mainly those with premium product, will stand firm and ultimately rent at their asking price.

In your experience, which kinds of apartments are seeing the biggest increases in rent prices? Which are seeing the biggest decreases?

Generally speaking, we're seeing premiums given to the smaller studios and one-bedrooms. Units larger than 1,200 square feet are seeing the biggest decreases.

How are doorman buildings doing compared to non-doorman buildings?

Williamsburg has yet to see a true rental building with a doorman. However, Aptsandlofts.com is slated to unveil rental buildings that will feature doormen-posted lobbies in the near future.

Which neighborhoods have deals right now for renters? Which neighborhoods are overpriced for rentals now?

[There are deals to be had in] East Williamsburg, Bushwick and Bed-Stuy. They offer rents lower than sought-after North Williamsburg or Greenpoint.

How has the current rental market impacted commissions?

In the past, renters typically paid one month's rent or 10 percent of the annual rent [in commission]. Presently renters are paying up to 15 percent. This is due largely in part to the influx of Manhattan customers, who are accustomed to paying 15 percent.

Adjina Dekidjiev rental operations manager, Manhattan Apartments

Are renters and landlords negotiating more now than they were six months or a year ago?

Some landlords are lowering prices, if the apartment is overpriced. However, if it is listed for August 1, it probably won't be [discounted]. In that case, landlords still have time to rent for the asking price. [Also], not across the board, but some landlords are negotiating on the move-in date or price, but not both.

What is supply versus demand like right now for rentals? What types of rental units are in shortest supply? Where is there oversupply?

There are a lot of one-bedrooms and two-bedrooms out there right now. There are few three-bedrooms and four-bedrooms. We recommend clients to go to the Upper East Side, east of First Avenue, and to Upper Manhattan to get the best deals.

How has the current rental market impacted commissions?

We only reduce our fees if the owner is paying part of the fee, which is mainly for some doorman buildings.

Have you seen attitudes change among renters and landlords because of the current state of the rental market?

Many clients expect everything to be no-fee, but if they're looking for a great deal in a popular neighborhood, like the Village, it won't be no-fee. Also, landlords have been reducing rents on some overpriced apartments — if there is a lot of similar product out there in the same neighborhood.

Bob Scaglion managing director of residential marketing, Rose Associates

In your experience, which kinds of apartments are seeing the biggest increases in rent prices?

Studios are getting the biggest rent increases. It's about the price level rather than dollar per square foot in the rental business. Eighty to 90 percent of new rental buildings are studios and one-bedrooms. Only 15 percent of the rental apartments are larger than that. Condos are built as two- to three-bedrooms.

Which are seeing the biggest decreases?

Two-bedrooms.

How are doorman buildings doing compared to non-doorman buildings? Are renters growing more frugal because of the shaky economy?

We have 8,000 rentals, and they are all doorman properties. I think renters in past years reached to be in a building they wanted to be in. Now they are renting within their financial means rather than pushing their financial limits.

Which neighborhoods have deals right now for renters? And which neighborhoods are overpriced?

The Financial District [has deals] because it is a lower price point area and it has been affected by Wall Street. They may be offering concessions in terms of one free month or no broker's fee. There really aren't any [overpriced areas]. The rental market adapts so if there is an area that's not renting, landlords adjust their rents. If there is anywhere where the rents are slightly up, it would be on the West 42nd Street corridor, where there is lots of inventory — thousands of rentals are coming shortly.

Will we be seeing more new construction of rental buildings in the near future because the condo market is softening?

No, we are not going to see new construction other than rentals that are already in the pipeline. That's because of the lack of affordability [due to] changes to the bond 80/20 program, the [changes in the] 421-a program and [the fact that] banks aren't lending without high equity from the owner, which means it doesn't make economic sense to build. Anything that has been planned already will go forward.

Marc Kaplan vice president of leasing, Stonehenge Management

What is supply versus demand like right now for rentals?

Currently we are seeing demand outpacing supply. We are facing a shortage of one-bedroom apartments in many areas of the city. If I had to choose one area where supply was slightly higher, Midtown West would be my choice. The Ritz Plaza and the Olivia, our largest properties, are located in this area.

What kind of impact have Wall Street layoffs had on the rental market?

We have seen several tenants not renew and move on to other areas. [Still], we are quite busy leasing apartments to entry level analysts and others who have secured jobs on Wall Street.

Will we be seeing more new construction rental buildings in the near future because the condo market is softening?

Land costs will dictate what is built. The current scarcity of land and pricing of that land will likely prevent most developers from being able to build rental buildings.

Shane Kramer director of leasing, Bond New York

What kind of impact have Wall Street layoffs had on the rental market?

[There are] fewer single professionals with a $3,500 to $4,500 one-bedroom [rental] budget.

Are renters and landlords negotiating more now than they were six months or a year ago?

A year ago you would apply, get approved and sign a lease all in one day with a start date within one or two days. Now it seems if an applicant is well-qualified, the landlord may give them a week or two before they need to start paying rent.

What is supply versus demand like right now for rentals? What types of rental units are in shortest supply? Where is there oversupply?

There are not enough three- and four- bedroom shares for the students. Often, agents are forced to break the group into multiple two-bedrooms. We have also seen the group may be dividing themselves up and one person taking a studio, finances permitting of course, and the others move in together to a lower priced two-bedroom.

Which neighborhoods have deals right now for renters? Which neighborhoods are overpriced for rentals now?

Downtown — Chambers Street and below — have good deals with landlord incentives. The Upper East Side always has a good deal or two.

What's the most challenging thing right now about specializing in rentals?

There seems to be a slowdown in new agents getting licenses and experienced agents gradually move on to sales.

Gordon Golub senior managing director, Citi Habitats

What kinds of incentives are landlords offering in buildings to attract new renters, and how does that differ from a year ago?

Incentives are very similar to a year ago — the difference is that they are lasting into the summer months, whereas a year ago, incentives diminished in the spring.

Have you seen attitudes change among renters and landlords because of the current state of the rental market? If so, how?

Renters have remained the same for the most part; maybe they will prolong their search a bit until they do all of their research. Landlords have been exploring every avenue possible in order to achieve their target number as opposed to a couple of years ago when they could get the number with their eyes closed.

Will we be seeing more new construction rental buildings in the near future because the condo market is softening?

It is very difficult to build a rental building with all of the variables in today's market. Then again, this has probably been said every few years in this city for the past 50 years. Expect to see most of the new buildings in the West 30s and 40s.

What kinds of amenities are you seeing at high-end rental buildings that we haven't seen in the past?

Pet spas, digital mailboxes, movie theaters and refrigerated package rooms to store food.