NYC landlords continue to rely on concessions, but a reckoning is coming

This month, concessions remain the new normal for NYC’s rental market. Landlord perks were high in Manhattan, Brooklyn, and Queens—and yet, those landlords continue to resist lowering the face rent at new and high-priced developments.

Jonathan Miller, the man behind Douglas Elliman’s April rental report, explains: “While the three boroughs didn’t set records with concessions, they’re flirting with record levels.” In Manhattan, that means 1.3 months of free rent (or its equivalent), and nearly 29 percent of rental transactions included a concession, compared to 13 percent at the same time last year.

It’s the same story in the outer boroughs: In Brooklyn, 14.7 percent of new rentals transactions came with concessions, up from 6.5 percent last year. And in Northwest Queens (the part of the borough that Elliman tracks), those perks have tripled to their highest level to date. A whopping 45.5 percent of rental transactions came with some kind of perk, up from 14.6 percent when the firm began tracking those number last year.

The big takeaway, says Miller, is that “the landlords, at least now, are working [with renters], because the vacancy rate fell, although it’s still higher than it was three or four years ago.” In Manhattan, for example, the vacancy rate fell to 2 percent, from 2.35 percent.

But landlords—and tenants—may be taking a risk with these hefty perks. “As concessions continue to rise as a tool by landlords to fill buildings, you’ll have people at the end of the year who can’t afford to live there if the concessions go away,” explains Miller. At a certain point, he says, landlords will have to reduce the face rent of apartments. “They won’t be able to continue the charade,” he notes.

In Manhattan, the median rent is basically unchanged from a year ago—it only increased 0.1 percent to $3,417/month. (Factoring in concessions, the median rent came in at $3,309.) In Brooklyn, the median rent rose 0.7 percent to $2,800/month, $617 less than Manhattan median rent. (With concessions that rent becomes $2,765.) Queens, however, showed gains, with the median rent up 12.2 percent to $3,088. (The concessions rent is $2,995.)

The numbers also show a significant divergence in trend for doorman and non-doorman (i.e. typically cheaper) rents. Charted above, you can see year-over-year doorman median prices tracked in pink. The purple lines track median rent for non-doorman buildings. “Over the last four years those lines have been mostly together,” Miller explains. Now, the rents are splitting, with non-doorman rent prices surging as doorman rents plunge. The chart shows how much tighter the market has become for less expensive apartments, as the market grows ever softer for luxury apartments.

Over in Brooklyn, Miller tracked weak price trends across the market, with one-bedroom prices down from last year (to $3,758/month) and prices for two- and three-bedrooms essentially flat. Studio prices, however, are up 5.9 percent to $2,445. “There’s a big demand there, but you’re not seeing a lot of new inventory yet,” Miller says.

In Northwest Queens, numbers are more random because its new development market share is so high: new development accounted for 35.4 percent of the market, up from 19.9 percent. That means overall, prices are up, with the median of $3,088 a full 12 percent increase over last year. “It’s a shift in the mix, it’s not because prices are rising,” Miller says.

Citi Habitats also released its report and found that 28 percent of rental transactions brokered by the firm offered a free month’s rent and/or payment of the broker fee to entice new tenants in April. That’s down from 35 percent in March, but up from 19 percent one year ago. The firm also tracked a falling vacancy rate, from 1.89 percent in March to 1.78 percent in April.

According to Citi Habitats, the average monthly rental price for a Manhattan studio was $2,342. For one bedrooms the average was $3,154. For two bedrooms, the average rent was $4,127 and the average for three bedrooms was $5,354. Brooklyn studio apartments (in the 14 neighborhoods studied) rented for $2,267 a month on average. One bedrooms came in at $2,851, while rents for two- and three-bedrooms clocked in at $3,732 and $5,049.

• The Elliman Report: Manhattan, Brooklyn & Queens Rentals [Douglas Elliman]
• Citi Habitats April 2017 rental market report [Citi Habitats]
• All NYC Rental Market Reports [Curbed]