Fear has prevailed among landlords of high-end Manhattan rental
buildings in recent months. An increasing number of their plush units
remain vacant as, perhaps not coincidentally, an increasing number of
deep-pocketed Wall Street employees find themselves out of work.
Building owners try to
downplay the effect widespread layoffs in the financial industry will
have on the real estate market. But they are holding their collective
breath, hoping that the rental market’s recent slip doesn’t leave them
holding onto new, luxury developments with few tenants willing to pay
the premium rents they banked on.
“We can see they are
very, very concerned about vacancies,” said Laurence Rosenberg,
president of RDNY.com, a Web site that provides information about
no-broker-fee apartments in the New York City region. “The renter has a
little bit of the upper hand.”
Many landlords point
out that Wall Street is just one of many industries fueling New York
City’s economy. Still, the depth of the Wall Street-based cuts cannot
be ignored: The city’s Independent Budget Office estimates that by the
end of 2009, the financial sector will have slashed 20,200 jobs. Also,
as economic woes widen beyond those of the investment banks, New
Yorkers in all industries are cutting expenses.
The specter of rampant
job loss has led even wealthy residents to reduce their spending. Marc
Kaplan, vice president of leasing at Stonehenge Management, which owns
18 rental properties throughout Manhattan, noted that an increasing
number of tenants have asked whether they could lower their rental
rates, or perhaps move into a smaller, cheaper unit.
“I’ve spoken to five to
10 Bear Stearns employees,” he said. “I can’t predict their future.
It’s almost as if I’ve become a therapist. We realize there’s a lot of
unrest and uncertainty.”
Kaplan, whose company
rents one-bedroom units that range from $2,000 to $4,500, said he has
encouraged renters to meet with him to talk about their concerns. The
majority of his tenants are staying put, but “the concern is definitely
there,” he said.
Matthew Buckle, a
trader on Wall Street who’s currently between jobs, said he had many
properties to choose from in his budget range — a maximum $9,000 a
month for a two-bedroom — as he hunted for an apartment a couple of
months ago. His ideal apartment had to fulfill several criteria. A
large, newly renovated, high-end kitchen was at the top of the list.
“There’s obviously
loads of apartments advertised to rent,” he said, adding that he was
frustrated by a lack of pictures on numerous sites he trolled through.
Buckle eventually found a $5,000-a-month one-bedroom unit in a refurbished Soho brownstone that met his needs.
Buckle
said some Wall Street colleagues have held off on buying property until
they have a better sense of the direction of the city’s housing market.
But he didn’t know whether people had changed their hopes for rental
units as a result of the current economy.
“It’s not something you normally talk about with your colleagues,” he said.
The
city’s rental market has long been tied to economic cycles. In
Manhattan, rents jumped by almost 16 percent from 2005 to 2007 during
the height of the real estate boom and a stronger economy. Now those
record-high rates are dipping, according to data compiled by Citi
Habitats.
In the first quarter of
2008, for example, rates for studios declined by 2.1 percent compared
with the first quarter of last year. Rents for two-bedroom apartments
dropped 4.9 percent, and prices for three-bedrooms decreased by 7.6
percent.
One-bedroom apartments
were the lone bright spot: Rates there increased 3.7 percent. Vacancy
rates also inched upward during the first quarter, increasing from 1.12
percent in 2007 to 1.30 percent in 2008, according to Citi Habitats.
Gary Malin, Citi
Habitats’ president, said his company is “getting calls from all the
banks” to find fully furnished apartments for relocating employees. “I
haven’t seen a slowdown in that set,” he said.
In general, Malin said,
market players are taking “a wait-and-see approach” with the effect
Wall Street’s slump will have on their properties.
“There are all these question marks,” he said. “People really say it’s not necessarily
a crisis.”
Daniel
Baum, CEO of the Real Estate Group New York, said in some seasons, he
doesn’t have much inventory to show clients due to the tightness of the
market. But this year, Baum said, prospective renters will have more
options.
However, the city’s increasing vacancy rates are not spread evenly among neighborhoods and income brackets.
“So
far, it seems to be disproportionately at the luxury ends on
Manhattan,” RDNY.com’s Rosenberg said, referring to apartments that are
priced above $2,700 a month for studios and above $3,500 a month for
one-bedrooms. “We have not seen that at all on the bottom.”
Upscale apartment
owners are shelling out incentives — such as one month’s free rent — to
fill empty apartments. New developments in Battery Park City are among
the hardest hit, Rosenberg said.
In its quarterly report
released on April 14, Citi Habitats reported that Battery Park City
properties saw their vacancy rates rise from 1.06 percent in January to
1.25 percent in March.
City residents have
also been looking for smaller apartments in recent months, when
possible, Baum said. “Studios have fared the best, one-bedrooms after
that,” he said. “People will continue opting for smaller units.”
While wary of potential
economic troubles to come, landlords have managed to keep rental rates
relatively stable in the past few months. According to the Real Estate
Group New York, March rental rates were on par with February’s. This
relieved some building owners, whose rates, especially for properties
in the Financial District, plummeted late last year.
However, rental rates usually increase in March after the traditionally sleepy winter season.
Baum
said he expects prices to rise in late spring and summer, which tend to
be the busiest for rental properties. But “our data indicates that this
spring could be less lucrative for landlords than the warmer months of
the past few years’ unprecedented rental boom,” his March report said.
“Nobody wants to be a
pessimist, but at the same time, you have to look at the practical
reality,” Baum said. “Many owners will not be happy with their own
vacancies.”