New York City is famous for its cramped — and pricey — living spaces.
That’s truer than ever this summer, with the busy rental market continuing its frenzied pace. But tenants looking for smaller units are feeling the worst of the pain, as rent increases for studios and one-bedrooms outpace the market overall, according to a Prudential Douglas Elliman quarterly market report released last month.
In fact, in the second quarter of 2012, rents for these small homes were at their highest levels in at least four years, according to appraiser Jonathan Miller, who prepared the Elliman report.
In New York City, there’s always demand for these entry-level apartments, which are popular with students, early career professionals and pied-à-terre seekers. And while studios and one-bedrooms dominate the rental stock in Manhattan — making up 70 percent of rental transactions in the second quarter, according to the Elliman report — there aren’t enough of them to go around. Mayor Michael Bloomberg recently cited statistics showing that there are 1 million studio and one-bedroom apartments in New York City, and 1.8 million one- and two-person households.
While demand is always highest in the summer, it seems to be particularly intense this year, brokers said. Some renters may be downsizing after getting hit with lease renewals lacking the rent breaks and concessions that became common during the recession, experts said. Others may be unable to secure mortgages to buy apartments in the tight lending environment.
The median rent for a Manhattan home in the second quarter of 2012 rose 7.9 percent year-over-year, to $3,125, the Elliman report said. But the median rent for studios rose nearly twice as much, by 15.4 percent to $2,395 per month, nearing the peak established in the second quarter of 2008. For one-bedrooms, the median rent rose 8.5 percent to $3,250, tying records set in the third quarters of 2007 and 2008.
Whatever the reason, demand has gotten so fierce that Bloomberg last month proposed his own plan to meet the need for entry-level apartments: “micro” units.
The city’s current zoning regulations require newly built apartments to measure at least 400 square feet. Promising to waive these rules, the mayor invited developers to submit plans for a Kips Bay rental building where at least three-quarters of the units would be only about 300 square feet in size.
The competition has provoked a vociferous response, both from average New Yorkers and real estate industry insiders.
Author Fran Lebowitz decried the mayor’s suggestion that renters make do with even less space. “There is a reason there are laws against apartments that are too small,” she said to the audience at a book launch for a compilation of essays by NYU professors last month.
But Steven Spinola, president of the Real Estate Board of New York, said the initiative could become “one of the more enduring aspects of the Mayor’s housing legacy,” by addressing New York City’s persistent housing shortage.
Politics aside, brokers said that renters are signing leases for smaller apartments at a blistering pace.
Adina Azarian, founder of rental firm Adina Equities and a Keller Williams NYC broker, said that in the last month she has seen an “unprecedented amount of applications” for rentals, particularly for apartments priced under $2,500 per month.
Higher-end rental listings — those asking around $10,000 per month — stayed on the market longer, she said.
“With all the media attention on the hot rental market right now, some of those landlords may have unrealistic expectations of exactly how high of a rent they actually can get,” she said.
Still, the perennial summertime spike in demand, combined with a shortage of new-construction rentals, is creating an ultracompetitive market where landlords have their pick of tenants, brokers said.
“There is new rental product coming into the marketplace all the time,” said Adrienne Albert, CEO of the Marketing Directors, which is currently marketing the Crescent Club, a 130-unit Long Island City rental tower. But, she said, it’s “not at a level that would significantly influence pricing.”
Andrew Barrocas, CEO of brokerage MNS, said the lack of available inventory has been “hands down” the most difficult part of arranging rental transactions in the past month. He described his cousin’s search for a $4,000 two-bedroom in upper Chelsea: “The search took much longer than expected.”
Looking ahead, those rents show no signs of falling, brokers said.
“The inventory is tight,” said Jeffrey Schleider, founder of brokerage Miron Properties. “And with a fresh batch of recent graduates, we expect rents to stay at current levels at least through mid-September.”