Renting is looking good again. As apartment sales slow in Manhattan and Brooklyn, rental markets have been heating up, with monthly rates rising and vacant rental apartments leaving the market more quickly, brokers and agents say.
Some brokers estimate a $300 increase in monthly rents from a year ago, with the high-end rental market being outpaced by the demand for smaller apartments.
Alex Cho, rental manager at Dwelling Quest in Manhattan, says one-bedroom apartments that rented for $2,400 to $2,500 per month last year are now going for about $2,800.
He says it’s a reflection of a buyer’s market that’s looking less attractive, prompting prospective homeowners to stick with what they’ve already got after they go out and investigate the market.
“A lot of tenants who want to move out are staying put,” Cho said.
Also, there is some softening in the very high end of the rental market, according to Marcia Yawitz of Eastern Consolidated, though she says the overall market is healthy.
But the overall rise in rents isn’t just a question of pricing. Rents are also being helped by the lack of development of new rental buildings in Manhattan, because the price of land is currently too high to justify building rentals versus condominiums, though there have been reports that land prices are starting to fall in some outlying areas.
“Since most of the new construction is for condominiums, there is still a shortage of rental properties available and that’s why the market is holding up,” Yawitz said.
John Reinhardt, president and CEO of Brooklyn-based Fillmore Real Estate, said he noticed a shift in the for-sale market in early October. With interest rates rising and home heating costs going up, some consumers decided to hold off on purchasing, he said.
Rents are rising overall, but there may be some variations because of rising energy prices, Reinhardt said.
“If the tenant is paying for the heat, maybe the rent won’t go up. Or the rent may go down to absorb the fact they pay the heat,” he said.
Reinhardt said it will be interesting to see how things shake out in the rental market in the next year or so. In the Sheepshead Bay area of Brooklyn, for example, one developer decided to convert a 175-unit building to rentals after sales slowed and more new condo units hit the market. He says it’s an indication that a greater number of rental units could be on the way.
Still, like Manhattan, for now, agents and brokers report a return to greater competition between prospective renters for apartments in Brooklyn.
“What we’ve seen is a rise in rents steadily over this year and continuing into this quarter,” said Chris Thomas, executive vice president and managing director of sales at the Brooklyn Heights office of Brown Harris Stevens. “What we’re seeing consistently now is that apartments are renting in the first week they are listed.”
The biggest competition is for the smallest apartments. Competition for rentals is greatest in apartments that are 1,000 square feet or less, Thomas said.
In Brooklyn, people aren’t necessarily making the decision whether or not to rent or buy entirely on prices and income, Thomas added. Families who need more space are typically choosing to buy because there aren’t as many larger rental properties available.
“Not that we don’t rent three bedrooms, whole houses and duplexes,” he said, “but in the sales market there are more apartments and houses in every size.”
New condos impact rentals
Inventory will be the rental market’s wild card for the next year or so, as investors who buy newly built condos decide how to use their properties.
“It’s going to be interesting to watch,” says Steen Rasmussen, executive vice president and director of sales and rentals at Dwelling Quest. “I think a lot of new construction condos have been sold for the purpose of renting by investors. Some inventory is going to become available and obviously those people are going to be looking for premium rent.”
As purchase prices rose, Rasmussen says he saw a drop-off in investor interest in buying properties to rent. Since the first half of the year, “the market has definitely slowed down. A lot of those buyers are finding that the spread between what they are paying and what they can get in rent is too narrow. That’s when investors stop buying.”
Rent or buy? The question may answer itself
While the merits of renting versus buying remain subject to debate as people consider their monthly housing costs, that discussion could mute itself as the rental market gets increasingly hot and the sales market cools.
“What happens when interest rates rise and condo prices rise, it becomes cheaper to rent,” says Bart Zimmermann, vice president at Itzhaki Properties in Manhattan.
For example, a two-bedroom apartment with ownership costs of around $4,100 a month factoring in common charges, a 20 percent down payment, taxes and interest may cost about $2,500 to $2,700 to rent, he says.
But as the rental market begins to look more attractive to people and rents increase, prices on the sales side and rental side could level out somewhat, he says.
“Both markets are still strong,” Zimmerman says. “Rentals can only go so high and sales can only drop so low in an economy that’s starting to pick up a little bit.”