Residential rental activity in 2Q nears pre-Lehman levels

Rental activity in the second quarter of 2010
returned to pre-recession levels, more than doubling from the same
period last year, according to a quarterly market report released today
by Prudential Douglas Elliman.

The firm tracked some 5,659
rental transactions in the second quarter, the report shows, up from
2,346 during the same period of 2009.

Meanwhile, rents stayed mostly flat.

The
average price for a Manhattan rental apartment in the second quarter
was $3,710, the report says, down 3.3 percent from $3,839 in the same
period last year. The median rental price was $3,000, a 3.2 percent
quarter-over-quarter drop. Meanwhile, the average rent on a
per-square-foot basis increased 12.3 percent to $49.60 from
$44.16  in second-quarter 2009.

“From a landlord’s
perspective, the news is better than it was a year ago,” said Jonathan
Miller, the president and CEO of Miller Samuel, who authored the
report.

In other positive news for landlords, the average
listing discount in the second quarter shrank to 1.8 percent from 9.5
percent in the same period a year ago, while the inventory of available
rental units dropped nearly 32 percent to 4,972, according to the
report, which is based on transactions from Elliman and other real
estate firms.

Miller said the report marks a return to activity levels that were normal for Manhattan before the Lehman Brothers collapse.

“It’s
less that there was a spike [in activity,]” he said, “and more that
it’s consistent with what we’d been averaging pre-Lehman.”

For
example, in the second quarter of 2008 he tracked 5,624 rental
transactions — similar to this year’s second-quarter figure. The
number of rental transactions in the second quarter of 2009 was
abnormally low, due to the financial crisis, he said.

While
rents are similar to where they were a year ago, shrinking inventory
and more rental transactions mean landlords are not giving as many
concessions to tenants.

“Now it’s more typical to see one-month
free rent, [as opposed to] six months ago when it was two to three
months,” Miller said. “We’re still seeing some concessions, but not the
level that we were.”

Citi Habitats, which also released a
second-quarter rental market report today, similarly found little
fluctuation in Manhattan rents from last year.

The average rent
for a Manhattan studio in the second quarter was $1,811, up 2.6 percent
from the prior-year-quarter, according to the report, which was
compiled from Citi Habitats’ transactions. The average rent for a
one-bedroom was $2,448, up less than 1 percent from last year.
Two-bedroom rents dropped 1.6 percent to $3,392, and three-bedrooms
slipped 3.4 percent to $4,478.

The rents cited in both Elliman
and Citi Habitats’ reports cover the gross rents that tenants pay, not
the net-effective rent after concessions offered by the landlord.

But Citi Habitats President Gary Malin said that in January 2010,
some 47 percent of the rental transactions the company did involved a
concession by the landlord. By June, he said, that figure had dropped
to 28 percent.

So while landlords are not charging significantly higher rents than last year, they are likely to be making more money.

“The landlord is pocketing substantially more money because they don’t have to pay the incentives,” Malin said.

Citi
Habitats said it did around 3,900 rental deals in the second quarter of
this year, but declined to disclose the exact figure.

Malin
attributed the busy rental market and shrinking inventory to improved
hiring on Wall Street. New York City had 429,000 financial jobs as of
May 31, up from 422,200 in February, according to the New York State
Department of Labor. While that may seem like a small increase, Malin
said it can make a big difference for the rental market, especially
since most newcomers to the city rent apartments rather than buy them.

“Most
new hires will enter the rental market before the sales market,” he
said, noting that he tells new residents to rent for at least a year to
help determine which neighborhoods they might want to buy in. “It makes
sense to get your bearings.”

Miller also theorized that renters
who shared apartments during the uncertain economic times of 2009 may
now be renting their own places, as consumer confidence improves.

Still,
he emphasized that the second quarter is the strongest rental period of
the year, and one quarter of strong activity doesn’t establish a
pattern, especially since overall unemployment in the city is still
high.

“It’s not clear whether this can be sustained given the state of the economy,” he said.