Manhattan landlords forgo concessions as rental market heats up
Manhattan rental units in the third quarter moved faster and were less negotiable than last year at the same time, while studios and one-bedrooms outperformed larger apartments, according to quarterly market reports released today.
The listing discount — the difference between the asking rent and the rent the tenant pays — shrank to 1.7 percent in the third quarter, the lowest level since 2006, according to a market report from Prudential Douglas Elliman. Meanwhile, the average number of days a listing sat on the market was 38, down from 77 in the third quarter of 2009, the report says.
That means landlords were less willing to lower their rents, while apartments were rented faster, explained real estate appraiser Jonathan Miller, the president of Miller Samuel and the preparer of the Elliman report.
“You saw the lowest listing discount in four years, and you saw properties moving a lot faster than last year,” Miller said, attributing the changes to an improvement in consumer confidence. While both renters and landlords “are still not comfortable with the economic climate, they certainly feel better about it than a year and a half ago,” he said.
Meanwhile, it became far less common for landlords to offer concessions, like a month’s free rent or payment of a broker’s fee. A quarterly report released by real estate brokerage Citi Habitats stated that only 23 percent of the company’s rental transactions in the third quarter included a concession, compared to 52 percent in the same period of last year.
“There was very little use of concessions,” Miller said. “They’re still there, but they weren’t as predominant as they were last year.”
Gary Malin, the president of Citi Habitats, noted that concessions may start to creep back into the market as it enters the traditionally slow winter season, along with increases in vacancy.
“These months that we’re heading into, we historically see the vacancy rate creep up a little,” he said. “Pricing becomes more flexible.”
According to Citi Habitats’ report, the vacancy rate in the third quarter was 0.99 percent, down from 1.71 percent during the same period in 2009.
The reports also show a surge in new rental activity from last year. Elliman’s report, which includes all firm’s deals, tracked 8,593 new rentals in the third quarter, up from only 2,549 in the same period of last year. Citi Habitats said it did over 4,250 transactions in the third quarter, about 15 percent more than in the prior-year quarter.
But since hiring is still stagnant, experts said this likely wasn’t the result of an overall increase in rental activity. Rather, a bevy of tenants decided to leave their current apartments rather than renew their leases, many in search of cheaper rents now that their landlords stopped giving rent breaks and other concessions that became common during the recession.
“People in existing rentals that did not get concessions said, ‘I’m going to find something new,'” said Stephen Kotler, director of residential leasing for Prudential Douglas Elliman.
Rents, meanwhile, were generally stable, inching up in some categories and falling slightly in others. Elliman’s report found that the average rent for a Manhattan apartment in the third quarter was $3,460, down 8 percent from $3,759 in the same quarter of 2009. The median rental price, however, was $3,000, up 1.7 percent from the prior-year quarter. The average rent per square was $47.22, down 1.3 percent from last year.
Both reports show rent increases for studios and one-bedrooms. According to Citi Habitats, the average rent for a studio jumped 3.9 percent to $1,828 from $1,760 in the prior year quarter, while one-bedrooms increased 3.2 percent to $2,501. Elliman’s report found that the median rent for a studio grew 9.8 percent to $2,195, while the average rent for a one-bedroom grew 1.9 percent to $2,950.
Larger apartments did not fare as well. Elliman’s report found that the median rent for two-, three- and four-bedroom apartments fell from the same quarter of last year, while Citi Habitats found that rents for larger apartments increased, but not as much as studios and one-bedrooms.
Kotler noted that one reason for the strength in smaller apartments is an increase in relocations to New York City from abroad. He said Elliman, which works with large firms to relocate their employees, is seeing about 25 percent more transfers of international workers to New York City. That’s common during a down market, he said, because large companies tend to reshuffle their employees rather than hire new people. “Companies will move people around instead of hiring new people,” he said, noting that it’s a way for firms to “redeploy the resources they have.”
These workers from abroad often rent, rather than buy, since they are often on temporary assignments, he said. They are also more likely to be single people or young married couples rather than families with children, he said, so they are apt to rent studios or one-bedrooms.
Miller also noted that there has been a surge in purchases of larger apartments, causing corresponding weakness in the rental market. “If you have an increase in rental activity you might have a decrease in the same segment on the sales side, and vice versa,” he said.