There is no question that rentals are rebounding, but how fast and how far will they go?
Boosted by increased hiring and refugees who had given up on the frenzied sales market, the rental market first started to show signs of life in February, said Fritz Frigan, director of leasing of Halstead.
Now the market – which has been largely downtrodden since the dot-com bubble burst – is going strong.
“Things are in full swing,” said Frigan. “After four years, this is not going to be just a seasonal thing.”
Frigan said his data showed a 1.5 percent increase in rents from October 1 through March 31, the most recent data available. Rents had actually been dropping from October to January, so the numbers for recent months are even stronger than they first might appear, he said.
Going forward, Frigan said he expects 5 to 6 percent growth in price of rents between the start of this year and the start of 2005.
Andrew Heiberger, president of Citi Habitats, now a division of Corcoran, said rents have gone up with lower-priced units as well as at the upper end of the market.
“We’re starting to see rents rise on units that go for $1,600 to $2,500,” he said. “Properties at the high end, above $6,000 per month, are doing well as a result of the overinflated condo market.”
Frigan said the high-end rental market, which drew buyers who grew disgruntled with the sales market, heated up first, and “now the small one-bedroom prices are going up as well,” largely as a result of more hiring by companies in the city.
Heiberger said the vacancy rate for rental apartments in Manhattan is “well under 2 percent,” and added he expects the market to get “tighter and tighter.”
Many landlords have stopped paying brokers’ commissions or offering other incentives such as one or two months’ free rent.
Heiberger said that of 500 buildings offering incentives at the beginning of the year, one-third had dropped off the list as of mid-June.
“We might see OP [owner paid] concessions drop out by summer’s end,” said Heiberger. “If they don’t, we’ll probably have to wait until January of next year.”
Last month, Glenwood Management, which has more than 20 luxury apartment buildings in Manhattan, said it would no longer pay fees to brokers for two- and three-bedroom apartments. The company said the move was prompted by the turnaround in the rental market in the past six months.
Glenwood said it would continue to pay broker fees for large apartments in its three new buildings: Liberty Plaza in the Financial District, Hampton Court at Gracie Point and the Grand Tier across from Lincoln Center, however.
While new projects have generally offered the most incentives, some “lower quality walkup buildings” are still paying brokers’ fees, though it’s “going in the direction of less and less,” Frigan said.
The Hell’s Kitchen area, site of new rental construction, still offers considerable incentives.
“Secondary locations like Clinton still need work,” said Neil Binder, principal of Bellmarc.
The overall strength of the rental market has lead some brokerages focused on sales to get into the rental game.
The merger in which Corcoran bought Citi Habitats seems well timed from the point of view of taking advantage of the improving rental market.
J.C. DeNiro & Associates, a boutique firm in Chelsea, decided to start up a rental program for the summer, presumable to grab a piece of the action.
Rentals normally represent only 5 percent of the firm’s business, partner and co-owner Christopher Mathieson said.
The “summer sales associate program” involved recruiting students at colleges to work as rental agents for the summer. The group of seven associates started in early June, and some already plan to stay on past the summer, Mathieson said.
“We got a huge amount of response,” said Mathieson. “They’re fully licensed and trained, and it’s a stimulating way to spend a summer and make money.”