Three Cents Worth: Why You Can No Longer Afford Your Manhattan Rent

After a couple of years off, Curbed's column Three Cents Worth makes its triumphant return! This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller looks at the what's going on in Manhattan's up-and-down rental market.

The April 2016 Manhattan-Brooklyn-Queens rental report was published late last week and I thought I’d present some additional Manhattan rental charts. Rents in the luxury rental market have been leveling off and beginning to slide. I define "luxury" as the top 10 percent of the rental market, which began at $6,500 in April. Non-luxury (no slight intended to the majority of renters) contains the remaining 90 percent of the rental market.

As you can see in the following three-year charts, the non-luxury average rents increased 13 percent, while luxury average rents were flat. In fact, luxury rents have been trending slight lower over the past year. A key reason for softening luxury rents, besides the introduction of new developments to the rental housing stock (and little else), has been the completion of luxury condos. There was a boom in signed condo contracts in 2013-2014, which contained a heavy concentration of new development condo sales. These investor units are have been entering the luxury rental market in large volumes since last fall as each new condo development is completed and the units close.

As a result of increased luxury supply, the use of concessions by landlords has expanded, as has the maximum amount of concessions provided (as a rental equivalent) by the landlord. While I don’t have the concessions data aggregated by rental price, it can be inferred that because rents are flat in the luxury market, there are likely more concessions occurring at the top.

Going forward, with heavy closing volume of new development expected to continue through 2017, it looks like luxury rents will soften further. However, I don’t see much relief in sight for the remainder of the market since rental supply has been static despite the increased demand from population growth ahead of projections and record employment gains.

The analogy of an ice cream cone (soft at the top) doesn’t work, since it’s not a very sweet market for most renters, nor is it fun.