In Q2, rents climb — creating a ‘market churn’
Average Manhattan studio surpasses $2,500 a month
The cost of a Manhattan rental apartment climbed to a median price of $3,125 per month in the second quarter of 2012, a new report shows. At the same time, more units came on the market, but the increased inventory isn’t necessarily good news for renters.
In the second quarter of 2012, rental listings rose 27.9 percent, to 5,660 units from 4,427 units, compared to the same period in 2011, showing evidence of “market churn,” according to a report released today by Prudential Douglas Elliman.
“The rise in inventory is a phenomenon created by people vacating their units when presented with a significant rent increase,” said Jonathan Miller, president of the appraisal firm Miller Samuel and author of Elliman’s report. “Technically it’s happening, but the property becomes available for a short period of time and is snapped up.”
In June, the vacancy rate increased to 1.01 percent, according to a similar report from Citi Habitats released today. That’s still tiny, but significantly higher than it was last June, when vacant units made up just 0.69 percent of the market, the report says. The vacancy rate was 0.97 percent in the second quarter overall.
As spring leases came up for renewal, many apartment dwellers faced a double-barreled rent hike, noted Mark Menendez, Elliman’s director of rentals.
Landlords are not only raising the rent to match the market, they are also largely refusing to renew concessions, such as a free month’s rent, that were still prevalent at this time a year ago, he said. (Only 3.7 percent of apartments came with concessions in the second quarter, the Elliman report says.)
Starting in April or May, Menendez said, more tenants began approaching Elliman brokers looking to downsize their homes.
“People can get priced out of their apartments very, very easily,” Menendez said.
Indeed, Manhattan tenants renewing two-year leases in June faced a 12.8 percent rent increase on average, translating to about $423 per month, according to a June rental report from the brokerage MNS released today.
At the same time, the number of tenants who found new apartments, rather than renewed their leases, dropped 10.7 percent, to 7,657 from 8,572, in the second quarter of 2011, the Elliman report says. That’s largely because of a lack of supply of vacant apartments, Miller said.
Overall, the median rent was up 7.9 percent in the second quarter of 2012 — compared to $2,986 in the same period last year, according to Elliman. Rental increases accelerated slightly this quarter: in the preceding three quarters, the gain was more like 7.6 percent, Miller noted.
The average rent was $3,437, a 5.2 percent increase from the same period in 2011, according to Citi Habitats, which gathers its data from the firm’s closed transactions. In June alone, the average rent hit $3,443 per month, or about $94 higher than the peak rent in May 2007, the report says.
Still, that increase is not as steep as many industry watchers expected, said Gary Malin, president of Citi Habitats, suggesting the start of a plateau in rental rates. “If there’s a silver lining at all, it’s really that the rent appreciation is very modest when you’re looking at it month to month,” he said.
The biggest price jump occurred in smaller units, which tend to be “the least expensive so therefore the most heavily trafficked point” of the market, Miller said. The average monthly rent for studios and one-bedrooms increased 18.8 percent, to $2,569 per month, and 11.5 percent, to $3,386 per month, respectively, the report says.
The lack of such apartments is also a concern for Mayor Michael Bloomberg, who recently called on developers to design a Kips Bay rental project made up of 300-square-foot “micro” units.
Meanwhile, the average two-bedroom rent of $4,686 was 5 percent higher in the second quarter compared to a year ago, while three-bedroom rents increased only 3.8 percent to $6,940, according to the report.
On one hand, the potentially “alarming” cost of an average studio indicates the strength and desirability of the Manhattan market, Menendez said. But, “on the other side of the fence, it’s like, ‘Wow, this is a staggering price point,’” he said.
The increase in the vacancy rate may also have something to do with more New Yorkers becoming homeowners, as opposed to tenants, or newcomers to the city holding off on renting to save funds – in contrast to last year, when concessions may have convinced them to rent earlier in the year, Malin said.
However, Malin said he had a hunch that even tenants facing rent increases would more often than not decide to stay put – unless they were already looking for a new type of apartment or a different neighborhood.
Otherwise, he said, “there’s not really a great incentive to move.”