Glut of Luxury Rentals Is Driving Up Apartment Prices in NYC

Gather 'round, all, for everyone's favorite time: the moment of the month when we talk about how utterly hopeless and depressing New York City real estate is. Except, this month, it isn't the worst—it is merely bad. That's right; the rental market in Manhattan, Brooklyn, and Queens in January didn't set new records for most expensive this or highest priced that, and the stats just released by Douglas Elliman (PDF!) prove it.

Elliman's market reports compiler Jonathan Miller confirms, saying that because median rental prices have been going down year over year, the flux isn't just seasonal and is rather some sign of a plateau. (Ah, sweet relief—kind of.)

The median price for rentals in Manhattan has been falling on a year-over-year basis for nearly two years; 23 months, to be exact. That doesn't mean that rents have been going down, but that the amount they've been rising has been slowing. For example, rents in January 2016 were higher than in January 2015, but more marginally than the year prior. Miller thinks that this signifies that we "may be running out of room for more growth."

Other signs that point to this are Manhattan's growing rate of vacancy (up .39 percent from this time last year), and the growing rate of concessions—think a month of free rent, a reduced broker's fee—which have reached their highest market share in the last five years. Citi Habitats' rental market reports corroborate: rents have stabilized and concessions are at their highest rate in half a decade. To be clear, the median rental in Manhattan still costs $3,350 a month, so it isn't time to go jumping for joy just yet.

Here's the "told you so" moment: the luxury rental markets in Manhattan, Brooklyn, and Queens are growing at a slower rate than the non-luxury market. There's more demand out there right now for properties that aren't deemed luxury—or, within the top ten percent of the market—but those high-end rentals make up most of what's being pushed out, thanks in part to buyers in the luxury market who are closing on then renting their digs.

This supply and demand imbalance is causing the rents for non-luxe rentals to go up at a more rapid clip than their pricier counterparts. In December 2015 and December 2016, the median price for a luxury rental in Manhattan remained exactly the same while the median price for a non-luxury rental grew 3.3 percent across the upper, middle, and entry-level tiers.

The same goes for Brooklyn. The median rental price for luxury development dropped a whopping 6.1 percent between January of 2015 and January of 2016, bringing it down to $5,163 from $5,498. Across Brooklyn, the median rent grew nearly one percent year over year to January's median rent of $2,923.

January marks the third month in a row that the median rent has grown nominally or not at all year-over-year. "The overall market is leveling off," Miller says. For years, the Brooklyn market has been spinning out of control and finally things seem to be leveling off. Concessions are also on the rise in Brooklyn, reflecting that wooing renters to Kings County has started to take a little more creativity than in the past.

While rents in both Manhattan and Brooklyn showed some change, albeit small, the volatility of the Queens rental market is really showing through these days. The median year-over-year rent in Queens dropped nearly five percent from January of 2015 to $2,767.

The median rental price was particularly affected in the luxury market, where rents dropped nearly 11 percent from January 2015 to $4,200. Miller says these figures are emblematic of the market at large, but also say that Queens hasn't caught on just yet quite like Brooklyn has. Renters are still waiting for certain developments to woo them to the borough, rather than throwing down any and everything just to sleep on some no-chill person's couch for hundreds of dollars a month.

The long and short of it: median rents aren't skyrocketing up at the same quick pace they have been for the past few years, and it seems like it might stay that way for at least a little while. Manhattan, Brooklyn, or Queens—have your pick—but don't party too hard because New York City will probably still be number one later—that is, number one most expensive city in the world.
· Manhattan, Brooklyn, & Queens Rentals [Elliman (PDF)]
· Market Reports archives [Curbed]
· Rental Market Reports archives [Curbed]