LOIS WEISS: The Balance Of New York Renting Power Has Shifted
A critical mass of new apartment buildings is opening in New York City, and developers are conceding more and more to renters in an effort to lease them up.
Concessions — the industry term for free rent — by building owners were the second-highest on record, and nearly triple that of a year ago. At the same time, the inventory expanded for the 22nd month in a row.
In Brooklyn, the number of new leases surged but the median and average rent declined in the second quarter, according to a Douglas Elliman report. Renters are aware developers are scrambling, so the number of people shopping for discounts is increasing.
Renters have also shown they are willing to pay the application fee at several properties to play them off each other in search of the best deal, Citi Habitats President Gary Malin told me.
Even if they pay application fees — which could be $75 or more, depending on the property — if they can save $500 a month on rent with concessions, that is equal to $6K if the rent discounts last the whole year.
There is also a subset of folks who move every year, from new building to new building, changing apartments as often as they change their phones.
“They want to live in the latest and greatest and take advantage of the lifestyle and amenities,” Malin said.
The freedom of choice and ease of moving from one new, market-rate unit to another would make a compelling argument to dump rent controls altogether; alas, if only everyone could afford market rents.
Douglas Elliman also found that while the number of leases signed in new projects doubled, their rents also skewed upward, to $15K/month, with the number signed at higher rents also doubling.
These renters may own a home somewhere else — think Hamptons or Florida — and do not want the hassle of boards and rules in New York but do want the convenience of a doorman, super or maintenance staff, fitness facility and package room.
The buildings "are 'condo lite,' with great amenities, great finishes, and you don’t feel like you are sacrificing much,” Malin said.
The problem for investors, developers and the one-off owner: There are simply too many apartments on the market to keep prices soaring, and more are coming. While the city's vacancy rate for the luxury market remains under 2%, if the economy or the city’s TAMI sector job creation slows, those units may linger without even more sizable discounts.
The growth spurt of high-rise development in Brooklyn and Queens that was triggered by the end of the previous 421-a program has also created thousands of apartments entering the market.
A new Yardi Matrix report found that New York has 26,739 units under construction, 7.8% of all housing units coming in the entire U.S. But developers can’t build these apartments fast enough, at the right price points, to make them affordable for all New Yorkers.
In 2018, Citi Habitats says Manhattan will gain 4,442 apartments and Brooklyn an astonishing 10,581 as developers rushed to meet the demand of 2015 and 2016. By 2019, the number of units levels off to 3,425 in Manhattan and 6,791 in Brooklyn.
While 1,511 units came to market in Long Island City in 2016, 5,872 are coming this year and there are another 6,411 delivering in 2018. So far, there are plans for another 2,774 in 2019, per Citi Habitats, for a total of 16,568 units. That means lots of newly minted residents, eager to have more shops and restaurants, paying top dollar.
In the entire borough of Queens, rent concessions were four times higher than last year and those with OP or rent concessions were 38.3 percent of the market, up from 9.4 percent a year ago.
In Brooklyn and Queens, “rents remain high, but prices are sliding as concessions have stabilized,” said Jonathan Miller of Miller Samuel, who creates market reports for Douglas Elliman. “Concessions are three to four times higher than they had been a few years ago, but they are staying consistent because they are working, and vacancy has stabilized.”
Miller also doesn’t expect concessions to rise much higher because, as it is, the units are getting leased. CityRealty found 22% of New York City apartments that rented in May came with a concession.
There are also more condominiums opening, and some of those will have investor units that will also compete in the rental space. That is why the competition is fierce to get the prospects to sign those leases.
Malin said owners can draw the line on the rental number and get 25 apartments leased, or give up some concessions and get 50 apartments occupied in the same period to start bringing in the rent money.
“With a new building, you want to lease up as fast as you can,” Malin says. “The market changes very quickly.”