July 8 (Bloomberg) -- Manhattan apartment rents climbed 7 percent in the second quarter from a year earlier as landlords emboldened by low vacancy rates cut concessions and tested how far they could push price increases.
Median effective rents, what tenants pay after landlord-sponsored incentives are calculated, rose to $2,888 a month from $2,700 a year earlier, according to a report today by appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. The number of new leases surged 52 percent to 8,572.
A stagnant sales market is leading to tighter rental supply and greater competition for apartments, encouraging landlords to raise rents in the busiest leasing season. The average price per square foot for a Manhattan apartment jumped 12 percent in the second quarter from a year earlier, meaning that tenants who boosted their budgets by that much found that they couldn’t get more space than they already had, according to Jonathan Miller, president of New York-based Miller Samuel.
“A significant portion of those gains are because the landlord is not as worried about tenant retention and vacancy, Miller said. “There is no category that you can say that rents are cheaper than last year. It’s just not happening.”
Landlords saw almost no need to offer concessions such as free rent to lure tenants in the second quarter. Incentives were included in about 3.4 percent of deals signed, compared with 60 percent a year earlier, Miller Samuel and Prudential said.
“General economic conditions here are improving very slowly,” Miller said. ”Tight credit conditions are keeping buyers out of the market.”
Sales of Manhattan co-ops and condos declined 3.8 percent in the second quarter from a year earlier to 2,650, Miller Samuel and Prudential said on July 1. The median price of apartments that sold dropped 5.5 percent to $850,000.
New York City’s jobless rate was at a 25-month low of 8.6 percent in May, unchanged from the previous month and down 1 percent from a year earlier, the state Department of Labor said on June 16. The city’s financial industry showed a net gain of 10,400 jobs in the 12 months through May.
“It’s very sobering for tenants,” said Gary Malin, president of brokerage Citi Habitats, which also released a rental market report today.
‘Delusion’ for Renters
“They have the delusion that because the economy has yet to truly rebound, they think that market conditions here are still weak,” Malin said. “They expect to get the type of deal their friend or family member got when they moved here 18 to 24 months ago, and those deals are a thing of the past.”
Manhattan’s apartment vacancy rate fell to 0.72 percent in the three months ended June 30, according to Citi Habitats, the lowest for a quarter since the firm began tracking the measure in 2002. The rate was 0.97 percent a year earlier. Nationwide, the vacancy rate was 6 percent, the lowest in more than three years, while effective rents rose in 80 of 82 surveyed metropolitan areas, Reis Inc. said in a report yesterday.
Ryan Kutscher, 32, witnessed the New York rental market’s change through his two apartment searches in one year’s time. Last year, he began his hunt a week before relocating to Manhattan from Boulder, Colorado, and secured a $2,500 one-bedroom in the Nolita neighborhood after one day of looking.
Kutscher decided to upgrade this year from his 400-square-foot (37-square-meter) walk-up, where his outstretched hands could touch both walls and the bedroom was so small that there was no room to stand and make the bed. He figured an increase in his rental budget by $1,000 would get him a more luxurious unit, then discovered otherwise after starting his search.
“What I was willing to pay started to go up and where I was willing to live changed,” said Kutscher, who works in advertising as a freelance copywriter and creative director. He increased his budget and expanded his search from Nolita and Soho to include the downtown areas of the Lower East Side, Gramercy, the East Village and the West Village.
Kutscher saw about 20 apartments in a month with multiple outings with a broker. He lost one to another would-be tenant, after completing the paperwork and agreeing to the price.
“I was seeing places that weren’t even listed and then they were gone at the end of the day,” he said.
His final stop was 95 Christopher St. in the West Village, where he found a renovated one-bedroom listed for $4,500. His broker, Alex Heydt of Citi Habitats, suggested they complete the paperwork before heading out to lunch.
While waiting in line at Shake Shack, a burger joint in Madison Square Park, Heydt got a call from the building’s management company. Two other would-be tenants applied for the apartment, and Kutscher needed to submit a “best offer.”
Kutscher ultimately agreed to pay $4,600 for the unit, and moved in July 1.
“The owners aren’t being so flexible and they’re getting away with it because the apartments are renting so fast,” Heydt said. “Until their vacancies start to build up or they’re not getting the rents they’re asking for, they’re going to keep hiking up the price.”
Apartments listed for rent spent an average of 33 days on the market, down from 53 days in the second quarter of 2010, according to Miller Samuel and Prudential. The number of apartments available for rent fell 11 percent to 4,427 units.
Eleven percent of landlords offered some form of concessions in June, compared with 28 percent in the same month last year, according to Citi Habitats, which based its report on the more than 3,000 transactions the firm’s brokers handled in the second quarter.
For landlords who still offered concessions, those deal sweeteners declined to about 1.2 months of free rent on average in the second quarter, from 2 months a year ago, according to Miller Samuel and Prudential. The average concession was worth about $347 a month in savings to the tenant, compared with $618 a month last year, Miller said.
Soho and Tribeca had the lowest vacancy rates and commanded the highest average rents in the quarter, according to Citi Habitats. Studios in those neighborhoods averaged $2,420 a month, while one-bedrooms rented for about $3,454, said the brokerage, whose data don’t include concessions. The neighborhood’s vacancy rate was 0.37 percent.
The Upper East Side and the Upper West Side had the highest vacancy rates, at 1 percent each, Citi Habitats data show. Studios on the Upper East Side averaged $1,781, and one-bedrooms rented for about $2,320. Two bedrooms averaged $3,528 and three-bedrooms leased for an average of $5,915.
Across Manhattan, rents at buildings with doormen started at an average of $2,420 a month for studios and climbed as high as $6,489 for three-bedroom units, Citi Habitats said. Studios at buildings without elevators rented at an average of $1,826 in the quarter, while one-bedrooms in those properties leased for an average of $2,476.
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