The Real Deal New York

Landlords cling to concessions amid softening rental market

April's median rent was down nearly 2% YOY in Manhattan: report
By Miriam Hall | May 11, 2017 07:30AM

Homes for rent in Brooklyn, Queens and Manhattan

The use of concessions has become a fixture in the city’s rental market, and while the measures are keeping building vacancies at bay, rents still remain flat.

Last month, the median rental price in Manhattan when factoring in concessions was $3,309, a year-over-year decline of 1.8 percent and the biggest drop in more than 12 months, according the April rental report from Douglas Elliman. Nearly 29 percent of leases signed in the borough during the month had some form of concession, double last year’s rate.

“Pricing is softening even before factoring in concessions. The question is – how big does the market share [of concessions] get before rents just fall anyway? We’re at that point,” said Jonathan Miller, the CEO of appraisal firm Miller Samuel and author of the report. “When [concessions] use is ubiquitous you have tenants renting apartments that, if for some reason the concessions were removed at the end of the one-year term, they can’t afford to live in the apartment.” Miller said the vast majority of leases signed at the moment are for one-year terms, which means tenants are betting rents aren’t going up any time soon.

Some industry insiders say rental concession use is now so widespread, in some cases market-rate rents have become meaningless.

Rents at the lower end of the Manhattan market are healthier than at the top. The median rental price of a studio was $2,575 last month, a nearly 2 percent increase from April 2016. Median rental prices for one-bedrooms and two-bedrooms dropped. For three-bedrooms, the median price decreased by more than 6 percent year-over-year to hit $5,593. The median rent for doorman buildings — 50 percent of the Manhattan market — dropped by 3 percent to $3,758, the biggest fall in nearly 5 years.

“Rents are still high, it’s just that we’re seeing a slow erosion, even with the use of concessions,” said Miller. “It’s unlikely that it’s going to get better — best case it will stay the same, more realistically I would say we will see continued softness.”

In Brooklyn, the net effective median rental price was $2,765 last month, which is almost exactly the same as last year. The use of concessions was almost 15 percent, much lower than in Manhattan, but still double what it was in the borough a year ago.

In Northwest Queens, over 45 percent of leases signed last month included concessions, triple the rate of April 2016. The median rental price after concessions increased 10 percent to hit $2,995, and prices increased in each segment of the market except for three-bedrooms, which dropped 19 percent to hit a median of $2,995.

However, Miller said increased rents in Queens are reflective of new development apartments becoming available, not a booming rental market.