February 2009 Rental Market Report

With the economic problems at the forefront of the news, I am frequently getting calls from people who are soaking up the constant stream of news reports about the economy and real estate and then developing certain expectations about the real estate market in Manhattan that are often inaccurate. Since unrealistic expectations almost always leads to disappointment, I wanted to nip some of the commonly expressed beliefs about the market with some of the facts (see February 2009 Rental Report in the link below this article).

Myth #1 - Rents are down by 50% or more in Manhattan
Answer #1 - Unless you're a landlord, wouldn't we all wish that to be the case. Unfortunately, while rents ARE indeed lower, for the most part, than just 6 months ago, the decreases have been modest and far less than most people -- particularly those arriving from out of state -- expect. Look at the attached "Market Report" for February 2009 and you can see that the average One Bedroom across all of Manhattan stood at $2405. If we go back 1 year ago, when the economy was seemingly working and rents were going nowhere but up, up, up...the average One Bedroom apartment stood at $2664. So over the span of a year, that represents a decrease of about 10%. Not nearly the degree of change that many people expect.

With studios, the average Studio rent across all of Manhattan stood at $1764 in February 2009. Back in the booming February 2008, it stood at $1869, representing about a 6% decrease. Again, not an earth-shattering change.

Looking at 2 BR apartments, the average across Manhattan stood at $3483 in February 2009, versus $3580 in February 2008, representing about a 3% decrease.

Looking at 3 BR apartments, the average across Manhattan stood at $4528 in February 2009, versus $4607 in February 2008, representing less than a 2% decrease!

So wait a minute...where are these massive rent drops?

There ARE some substantial rent drops happening, but they're happening in the high-end, among the most expensive properties. These are the apartments formerly rented by the hedge fund trader, or the banking executive, or other formerly high-flyer who now must downsize. In this realm, it's possible to find apartments once renting for $15,000/month being offered for less than $10,000/month, representing a more than 30% decrease.

Why haven't these high-end drops translated to larger drops in the average apartments? Quite frankly, it's the vacancy rate...there are just too many people waiting, waiting, waiting for just the right rent before they pick up and get themselves into prime Manhattan. So even a 5% decrease in an environment where the only changes seen in rent over the past several years has been consistent rent increases, is a great opportunity for someone to get the apartment that they've long wanted.

Myth #2 - I can get a much better deal by moving from my current apartment.
Answer #2 - The validity of that statement will depend largely on when you rented your apartment. If you rented only a year ago, you will indeed find that rents have dropped several percentage points over the year, and you may be able to save yourself some money every month. On the other hand, if you rented more than a year ago, and especially if you've rented many years ago with modest rent increases along the way, you may find that your current apartment remains the best value even with the current turmoil in the markets. Refer to "Myth #1" to get a better sense of the magnitude of rent decreases across each category of apartment.

Myth #3 - Landlords are desperate and it's possible to negotiate 30, 40 or 50% off the rent.
Answer #3 - Again, this takes us back to Myth #1. Rental prices are down by only a few percentage points across all apartments below $5,000 despite all that has been going on in the economy. The demand for housing remains exceptionally strong in Manhattan. It's important to keep that in mind when asking your broker to present an offer to the landlord. Your broker can always offer any amount that you ask to offer, but once you become labeled as "not serious" by making an offer the landlord may consider naive at best, or offensive at worst, it may be difficult to salvage a rental deal from that point. Your broker can often pull up recent rentals in the building in which you are interested in applying, which can give you a firmer idea of the rents that apartments are currently going in that particular building, and can help guide an offer.

CLICK HERE FOR FEBRUARY 2009 RENTAL MARKET REPORT