Welcoming back the seasons

Why the slowdown in residential rentals may actually be a good sign for the market

The cycle of renters in and out of Manhattan has long been one of the city’s most predictable patterns.

Young people arrive in the spring and summer, and then hunker down in their apartments, leaving the fourth quarter a relatively dead time of year, market-wise. So landlords dangle incentives to move units in the cold months.

But, as with many sectors of the market, this pattern (known as “seasonality” among brokers) changed after the Lehman Brothers crash. With the sluggish economy and near-freeze on hiring, fewer of the young renters were funneled into the city during those warm months.

Now that the residential market is slowly finding its footing again, it raises the question: Is seasonality back for rentals?

Appraiser Jonathan Miller thinks so.

“Housing lost a lot of the seasonal patterns we had grown accustomed to over the 25 years our firm has been tracking the market,” said Miller, president of the appraisal firm Miller Samuel. “As with sales, the seasonality was in disarray in 2008 to 2010.”

But the rental market is becoming predictable again, Miller said, and he sees 2008 to 2010 as the anomaly.

The number of new apartment rentals (that’s new lease signings, rather than renewals) reached 7,217 in the fourth quarter of last year, nearly three times as many as the same quarter a year earlier, according to Miller’s data.

Even so, that number was down 16 percent from third-quarter 2010, indicating that the traditional seasonal drop that brokers are so used to planning for may be returning.

Miller added that a firming up among condos and co-ops is also a positive indicator for rentals. “The fourth quarter [saw] a seasonal weakness that we used to expect in the fourth quarter,” Miller said. “In some ways, I think that’s somewhat comforting.”

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But despite this weakness, the frequency of concessions has declined significantly.

According to Citi Habitats’ latest rental market report, just 22 percent of the brokerage’s transactions in December involved concessions, compared to 60 percent during the same month a year earlier.

With this in mind, some brokers say that they still see exceptions to the return of seasonality.

Andrew Barrocas, CEO of the Real Estate Group New York, said the mind-set of some prospective renters changed during the last two years as concessions shot up. “With all the data available, renters are a lot more savvy and you see renters wanting to look in November or December, when they can find the best deals,” said Barrocas, referring to the typical trough season.

Others say they saw an active rental market at the end of the year, especially in Brooklyn, suggesting the traditionally slow winter may not have fully returned.

“What we are continuing to see is very strong demand … even after the traditional height of the rental season, between April and September, ended,” said David Maundrell, president of aptsandlofts.com.

Still, brokers welcome some market predictability, and note that a return of a “down season” could be a good sign for the rental world.

“The summer months do tend to bring about a more frenzied pitch to the rental market,” Jimmy Brett, senior vice president with Citi Habitats, said. The winter months typically see “25 percent to 40 percent” fewer rental transactions, he noted. “Due to the fact that more rental transactions are taking place during [the spring and summer months] … more tenants’ leases will come due the same time next year.”

Employment will play a big role in deciding whether this seasonal pattern returns for good. Roughly 119,500 fewer people are employed in New York City compared with August 2008, according to the latest data from the New York State Department of Labor. Only a full employment turnaround will return flocks of college grads looking for their first New York apartment, according to Gary Malin, president of Citi Habitats.

“If things haven’t stabilized in the broader economy, [landlords and renters] are going to hit that threshold where they won’t be able to interact,” Malin said. “The single most important thing that would make this market hot again would be hiring.”