While economy struggles, Manhattan rental market strengthens

Source: Prudential Douglas Elliman

In stark contrast from the various economic indicators surrounding it, the
Manhattan rental market showed remarkable stability and strength in the third
quarter. The price of an average Manhattan rental unit increased about 7 percent
from the prior year quarter and remained consistent with the impressive levels
achieved in the second quarter, according to market reports released today by
residential brokerages Prudential Douglas Elliman and Citi Habitats.

“I used to see the rental market as a leading indicator of changing economic
conditions because of how nimble it is,” said Jonathan Miller, CEO of appraisal firm
Miller Samuel who prepared Elliman’s report. “But here the economy is struggling —
or at best, is flat — and conditions are tight in the rental market.”

That’s because the economy has been so volatile that people are putting off their
purchasing decision and instead choosing to rent. Even those who are inclined to
buy, Miller noted, are encountering such strict mortgage underwriting standards
that they’re forced to reconsider.

To wit, Elliman’s report shows rental activity during the typically active summer
months slipped 6.9 percent from the same period a year ago to just 7,998
transactions, and 6.7 percent from the second quarter. Combined with the rising
rents, the data suggests many renters are staying put and delaying
decisions to move to another rental or buy, Miller speculated.

Factoring in concessions, the average monthly rent for a Manhattan apartment
increased 6.9 percent from the third quarter of 2010 to $3,491, Elliman data shows. The rental price per square foot skyrocketed 13.6 percent in that
timeframe to $50.60, according to the report.

In addition to the prospective buyers sitting on the sidelines, rental demand is so
strong, Citi Habitats President Gary Malin said, because of the extremely diverse and relatively resilient local
job market. According to the most recent data from the New York State Department of Labor, the city’s unemployment rate is 8.7 percent compared to 9.1 percent nationwide.

As a result the citywide vacancy rate was just 0.93 percent during the third
quarter, according to Citi Habitats’ report, which is based on transactions brokered by the firm. The report shows the average Manhattan
apartment rented for $3,346 a month during the quarter, 7.3 percent above the
going rate during the third quarter of 2010.

Both reports suggest that renters seeking bargains would be wise to look uptown.
Citi Habitats found the Upper West Side to have the second highest vacancy rate of
all neighborhoods below Harlem at 1.14 percent and the Upper East Side to have the
cheapest rents, for most unit sizes.

Elliman’s report found the average price for an uptown rental to be just $2,216 per
month, or $26.56 per square foot, compared to $3,842 and $53.07, respectively,
for the pricey downtown region. But bargain hunters better act fast: the report
indicates prices are rising faster uptown than anywhere else, gaining 17.4 percent
from last year and 25.1 percent from last quarter (though the sample size was
significantly smaller because their was less activity in the area).

While seasonal factors are sure to offer some relief to fourth-quarter renters, both
Miller and Malin expect landlords to maintain the upper hand for the foreseeable
future. Miller said that even though the higher end of the market may be
approaching the point where it makes more sense to buy, rents still have room to
rise before the market reaches that point, and even then the shift will be gradual.

“The rental market is notorious for reacting quickly,” Malin added, “and certain
people certainly will buy if it makes more sense. But it’s not going to be a massive,
demand-shifting wave, because uncertainty still rules the marketplace.”