Manhattan apartment rents fell for a third month in November and the vacancy rate reached the highest in at least seven years, signs the market is weakening amid a spike in homebuying and the lure of leasing in Brooklyn.
The median monthly rent in Manhattan dropped 3 percent from a year earlier to $3,100, according to a report today by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The vacancy rate climbed to 2.8 percent, the highest since the firms began tracking the data in August 2006.
Rents had been climbing for almost two years and approaching the 2006 peak of $3,265 a month before they began to slide in September. Manhattan home purchases jumped to a six-year high in the third quarter as buyers rushed to make deals before rising mortgage rates pushed costs higher, Miller Samuel and Douglas Elliman said. Sales of one-bedroom units reached a 15-year high, suggesting an influx of first-time buyers.
“With the scare about rising mortgage rates, it poached a lot of demand from the rental market,” Jonathan Miller, president of New York-based Miller Samuel, said in an interview. “On top of that, what else is poaching demand from the Manhattan rental market is Brooklyn.”
That borough, New York’s most populous, now competes directly with Manhattan as tenants seek out its gentrifying neighborhoods and perceive them as a relative bargain, he said.
The median monthly rent in Brooklyn rose for a sixth straight month in November to $2,800, up 3.8 percent from a year earlier. The $300 spread between leasing costs there and in Manhattan was the second lowest in almost six years of record-keeping, a sign that demand may swing back toward Manhattan if Brooklyn rents continue to climb, Miller said.
“There’s going to be a point where Brooklyn can’t grow in the way that it has,” he said. “As they start coming closer together, Manhattan rates are looking like a better deal. We’re getting to that point.”
Manhattan landlords agreed to offer concessions, such as a month’s free rent, on 7.2 percent of all new leases in November, up from 4.2 percent a year earlier.
The number of new agreements dropped 34 percent, the biggest decline since September 2011, suggesting that landlords opted to forgo large rent increases to entice existing tenants to stay put, Miller said.
“I see that as weakness,” he said. “More people renewed because the landlords weren’t that aggressive.”
Manhattan rents are unlikely to drop precipitously in the coming year as rising employment keeps leasing demand strong and higher borrowing costs deter potential buyers. The average rate for a 30-year fixed mortgage was 4.46 percent last week, the highest since September, according to data from McLean, Virginia-based Freddie Mac.
“I don’t think the purchase market is going to see the same heavy volume it saw in 2013 next year,” he said.
Among Manhattan neighborhoods, rents on the East Side fell the most last month, dropping 3.4 percent to a median of $2,800, Miller Samuel and Douglas Elliman said. On the West Side, the median fell 2 percent to $3,250. Rents downtown, defined as the area south of 34th Street, held at $3,495.
Leasing costs for luxury apartments, the top 10 percent of the market by price, climbed 1.2 percent to a median of $8,500.