Rental market is at peak concessions
They're at an all-time high in Manhattan, Brooklyn and Queens
It wasn’t only the weather in December that was frigid. The rental market was facing all kinds of headwinds as the year came to an end.
The share of rentals offering concessions set records in Manhattan, Brooklyn and Queens, according to a report from Douglas Elliman, even accounting for seasonality. In Manhattan, the share of apartments with concessions offered was at 36.2 percent, 37 percent higher than last December, and in Brooklyn, it more than tripled since last year to 46.1 percent of the market. Concessions were offered at 48 percent of new development rentals.
“This is still an important tool to protect face rents, to put on the best face so to speak,” said Jonathan Miller of appraisal firm Miller Samuel and author of the report. “They’re fighting a battle against the oversupply, so they’re putting out all the stops.”
But widespread use of concessions hasn’t been enough stave off minor losses in rental pricing in all three markets.
In Manhattan, median rent came in at $3,295, down 2.7 percent year-over-year, and a similar drop in the effective rent, to $3,208. That’s despite significant gains in luxury pricing, where median rent increased by 20 percent since December 2016 to $9,625. The threshold of the luxury tier, which consists of the top 10 percent of the market, increased 9 percent to $6,855.
While rents were cooling, activity was not. More than 5,000 units were leased in December, up 48 percent from last year. Lease activity in Uptown Manhattan almost tripled, climbing from 266 to 753.
In Brooklyn, median rent stayed exactly flat year-over-year at $2,700, but due to the rise in concessions, net effective rent came down 1.8 percent to $2,613. Brooklyn also saw the biggest drop for any size category, with a 15 percent drop for studios. However, even after the drop, studios are renting at a median $2,331, which is high by historical Brooklyn standards.
The prices are likely being influenced by the increasingly higher rents in a few outlier neighborhoods like Dumbo and Brooklyn Heights. According to a report from Citi Habitats, which looked at median and average rents by neighborhood, Dumbo is more expensive than any neighborhood in Manhattan except for Tribeca.
Queens saw the biggest slides in rents, with a 3.5 percent year-over-year drop to $2,750, and a 5.6 percent drop in net effective rents, settling at $2,649. Both Brooklyn and Queens showed declines in luxury rents and number of leases.
“This is a precursor for what we’re going to see for most of 2018, largely because all markets have a lot of rental units coming in to them,” said Miller, who expects concessions to remain elevated even as the cold season thaws.