New York City Luxury Rental Blog

For those looking to find a starter apartment in Manhattan, look no further than the Upper East Side. That’s right, the Upper East Side. The neighborhood with a long held reputation for having the single greatest concentration of wealth in the world is now home to some of the best rental deals in Manhattan. There is a catch though. Rental apartments on the Upper East Side are affordable for a reason: They all reside above the subway construction sites along Second Avenue. If you don’t mind living above a construction site, these low rents represent a great opportunity to live in one of Manhattan’s best residential neighborhoods. And since the Second Avenue Subway Line isn’t due to complete its first phase until December 2016, chances are that the rents will stay low for at least the next 4 years.

It’s an old story at this point, but if you’ve been following the Manhattan rental apartment market at all, you know the drill: vacancy is down, rents are up, new construction is scarce, and concessions are rare. Among the many explanations as to how we got here - and there are plenty - one of the most prominent is that Manhattan is a small island where space is limited, hence the lack of inventory. The reality is that this real estate platitude is a lazy way of analyzing our current market, one which obscures far more accurate explanations. For instance, the tight credit market for large new construction projects, government restrictions such as historic districts, and long-standing preconceived notions about certain Manhattan neighborhoods have a far greater influence on Manhattan’s rental apartment inventory than the size of the island.

The luxury rental market boom in Manhattan is just getting started. A dearth of new construction for Manhattan apartment buildings, severe lack of inventory, and high demand for luxury rentals in Manhattan virtually assures that prices will not only stay high or get higher on the top end of the market, they will likely rise for the lower end as well. Rents are soaring right now all around the borough, especially south of 59th Street. Desirable Manhattan neighborhoods like the West Village and Chelsea are setting records for high rents, but rents for formerly inexpensive apartments in Midtown West and the Financial District are also reaching new heights. Studios in Chelsea average $2,332 a month, while one-bedrooms in the West Village average $3,278 a month. Furthermore, newer buildings like 8 Spruce Street have raised the bar for luxury rentals in Manhattan. 8 Spruce in particular has changed the perception that renting is somehow less respectable than buying by offering luxury apartments that match the quality of condos. All over the city, landlords are responding by renovating their rental apartments to meet these new standards, so even though you may pay more for rent than you’d like to, you’ll get more in return.

We’ve already written extensively about scarcity in the rental inventory in Manhattan. A lack of available apartments will be one of the dominant themes of 2012, mostly due to economic uncertainty. The current economic climate has had the dual effect of preventing developers from constructing new buildings, and pushing people who would otherwise buy condos into the rental market. Yesterday the Wall Street Journal published figures that quantify the market’s scarcity. There will be roughly 2,230 apartments for rent in Manhattan that will go on the market this year, the lowest amount since 2005, when the figure was first counted. And the vacancy rate for all luxury rentals in Manhattan is 1.27%.

In the Manhattan rental market in 2011, demand for rental apartments far outstripped supply. Both developers and lenders recognized that this pent-up demand made for ideal building conditions, which is why $2.9 billion worth of new residential projects began in New York City in 2011. That’s a 24% increase from 2010 according to data released by the New York Building Congress. Additionally, Manhattan’s slew of stalled construction sites - land controlled by developers who have obtained all the necessary construction permits yet have still halted work - has finally begun to shrink. According to the New York City Department of Buildings, Manhattan had 130 stalled construction sites at this time last year, and now that number has fallen to 114. Furthermore, the number of demolition permits issued in Manhattan rose from 2010 to 2011, so more developers are waiting to break ground. So all this new construction should alleviate demand in the near future, right? Not exactly. While this is undoubtedly a step in the right direction, it still falls well short of the kind of progress that would help bring down rental prices in Manhattan. If there’s a lesson to be learned from 2011, it’s that even rising inventory won’t slow down the Manhattan rental market, so we at Luxury Rentals Manhattan don’t expect rents to begin to fall in 2012.