Two new market reports released this week confirmed what we already knew but added a few twists to the story. According to both reports, rents in Manhattan for luxury rental apartments continued their upward year-to-year trajectory in March. These median and average rent increases were elevated by a dearth of landlord concessions, something that we at Luxury Rentals Manhattan wrote about previously. The real shocker was that one report found that the average rent in for rental apartments in Manhattan in March, not including concessions, reached $3,418 a month, breaking the previous all-time high set in May 2007. The picture isn’t quite as one-sided as it appears though. Hidden beneath all these highs, there are some signs that the scales may finally be tipping back in favor of renters.
Citi Habitats released the report that found that average Manhattan rents in March broke the all-time record by $24. The brokerage firm starting tracking such statistics in 2002, so it’s safe to say that March really was the gold standard for the Manhattan rental market in the modern era. The one mitigating factor was that that average didn’t include concessions such as one rent-free month even though 12% of Citi Habitats’ deals in the month of March included such concessions. That number fell from 17% in March of 2011, however, so concessions are few and far between these days when compared to years past.
Their report also found that the unadjusted face rent per square foot rose 7.1% to $52.57, the highest level since the third quarter of 2008. Prudential Douglass Elliman and Miller Samuel Inc., the authors of the other market report, found similar numbers. They documented that median net effective rent, or rent that includes concessions, reached $3,064 during the first quarter, a 9.1% rise from the first quarter of 2011. Other increases during that time period included an 8% increase in average net effective rent for apartments in Manhattan to $3,608. But, as we mentioned before, this is not the whole story.
Surprisingly enough, rents fell in trendy Manhattan neighborhoods. Asking rents actually fell from 2011 to 2012 in both the East Village and Manhattan's Upper West Side. Vacancy rates for rental apartments in Manhattan also increased slightly during that same time period from 1.08% to 1.22%, which is notable especially since the Manhattan vacancy rate in the second quarter of 2011 was a mere 0.72%, according to Citi Habitats. This may be a sign of things to come, but the future of the Manhattan rental market depends upon one thing: credit standards.
These record breaking numbers are manifestations of an extremely tight credit market, not a booming economy, and if those standards loosen even a little, many Manhattan renters will rush back into the sales market. Other factors that could loosen supply are thousands of newly constructed rental apartment buildings that are on the way in 2012, a series of layoffs in the financial services sector, and record-low mortgage rates. These downward-pressures on the Manhattan rental market will be hard to contain if the credit market loosens, because many Manhattan renters are desperate to own a Manhattan apartment rather than continue to pay sky-high rents, so we don’t expect Manhattan rents to keep rising at their current pace.
