As demand for their units increases, landlords are raising rents at renewal time, prompting more tenants to walk.
Sam Zell’s Equity Residential saw its renewal rate drop 5 percentage points from the beginning of the year to 60 percent, Bloomberg reported. The lessened renewal rate is a sign renters are taking their chances on finding cheaper lodging than re-upping at a much higher rate than they initially signed on for.
The market is competitive, though, and those seeking cheaper digs are likely settling for less. Appraiser Miller Samuel and Douglas Elliman put the first-quarter vacancy rate below 2 percent, while rents surged 25 percent year-over-year.
In the New York area, Equity has hiked up rents for both renewals and new agreements. The net effective rent hike for first-quarter renewals was 21 percent, up from 14.5 percent in the fourth quarter of 2021. For new agreements, net effective pricing rose 29.7 percent.
Despite the aggressive increases, Equity isn’t sweating its search for tenants. On an earnings call, the REIT’s CEO, Mark Parrell, said the company was “easily able to attract new residents at these higher rates.”
Tenants have been scrambling following the expiration of many Covid-era bargains. Many who can’t afford steep increases are migrating to other parts of the city, while new renters arrive to fill the vacancies, giving the advantage to landlords.
“Landlords have the ball in their court,” Compass agent Carlos Aldana recently told The Real Deal. “They’re offering aggressive renewals and if that renter says no, they know that they’ll be able to achieve it elsewhere.”
Meanwhile, bidding wars accounted for one in five new lease signings last month, according to Miller Samuel. More inventory is expected to hit the market in the spring and summer.
As for Equity, it appears to be less interested in the city’s rental market than it once was. The Chicago-based REIT is looking to sell a five-building portfolio of Manhattan and Brooklyn rental buildings for more than $750 million, The Real Deal reported. Parallel said during the earnings call that the company plans to reduce its holdings in New York and Washington, D.C., although it hasn’t commented on the portfolio listing.
[Bloomberg] — Holden Walter-Warner