The second quarter through June 2010 showed a continued strenghtening in the Manhattan rental market over the past six months. In fact, surprising to almost everybody, has been the significant drop in rental vacancies. Manhattan's vacancy rate hit a high of 2.46% in February of 2009, and has since plummeted to 0.90% in June of 2010. The last time that Manhattan's vacancy rate dropped below 1% was the peak of the pre-recession summer market in August 2007!
There's a very simple reason why the rental recovery has been so strong and so fast: the drop in rents that occurred in Manhattan in 2009 was an exceptionally rare occurrence. While Manhattan was perhaps the last to be hit, and the first to begin recovery, the dip both rents and sales prices offered were equivalent to a sale of that "brand that never goes on sale." Clients of mine who trusted my assessment of the nascent recovery in mid-2009 and who either rented or purchased in that period, are today no doubt very happy that they did so. In fact, some of my clients are sitting on a 10% increase in apartment value in less the span of a year...a pretty significant and rapid appreciation. Of course, there were also clients who, like the rest of the city, were simply too fearful of all of the unknown and unprecedented economic occurences swirling around them. I purchased my own apartment back during the last time the economy was in the midst of substantial turmoil and I knew there's no better time to buy if one has a long-term investment horizon. However, it's a difficult argument to make when fear abounds. One prominent client of mine, an executive with many years of business experience, proclaimed in 2009 that the real estate market was undoubtedly headed for a fall of another 50%. He decided to wait on the sidelines instead of buying his dream home, hoping that prices would fall substantially more. Needless to say, that hasn't happened, and instead he unfortunately missed key window for a "once in a lifetime" killer investment.
Still, there are more gains ahead as the recovery continues. For renters, the change means it's very important to approach the current market with realistic expectations. Clients continue to come to me, and particularly those from outside New York City, with the belief that landlords are desperate, that rents are negotiable, and that this is a "renter's market." Unfortunately, while there was a brief window of time when all of the above was correct, the market has changed acutely. There seems to be an 8 month to 1 year lag in terms of the economic perceptions versus current economic reality. Unfortunately for prospective renters, the competition for apartments has intensified enormously as the vacancy rate has dropped now to even below pre-recession levels. There were an average of 9,125 available apartments for rent at any point during June 2010, compared to 9,548 in May, and 9,974 in April. The drop in inventory and tightening of the rental market are both very real. As demand continues to increase through the summer months and especially as we approach the "drop dead" occupancy date for thousands of returning college students and new hires of September 1st, I always advise my clients to begin their search with all financial documentation and other required application paperwork ready to go so that they will be prepared to jump on the right apartment opportunity. Once again, we're back in a market where even a matter of hours can mean the difference of winning or losing a particular apartment. In fact, it was this typical pace of New York City that led to the very naming of this blog, "Can You Move," to ask the question: can you move fast enough when you see the apartment you love?
The other trend happening now is the increase in rent prices. As vacancy rates have fallen, rents have slowly begun to climb. Average rents are still down from last year, which continues to draw more and more renters to Manhattan, but the record low vacancy rate practically assures that price increases are forthcoming. In fact, prices have climbed substantially across all categories between first and second quarters 2010. For studios, prices are up 3.5%; for one bedrooms, up 5%; for two bedrooms, up 3.5%; for three bedrooms, up 3%.
Yet another trend is the disappearing "OP" or owner-paid concessions. In January 2010, nearly half (47%) of rental deals involved some type of landlord incentive (typically a free month of rent, or payment of 1 month towards the brokerage fee). However, in June 2010, this has dropped to 28%, a drop of 40%. As these incentives were originally added by landlords in lieu of dropping rents when the economy was turning sour, we're seeing the opposite happen in 2010: landlords are now dropping those incentives first before raising rents. As landlord confidence returns, and particularly as vacancy rates continue get closer to lighting up a "NO VACANCY" over Manhattan, rents will of course necessarily begin resuming their historical climb if only to balance out the increasing demand with the shriking supply. But for a brief moment those who can "move" can still take advantage of those remaining deals and lock in a great apartment at a sale price rent.
You can find the complete 2nd Quarter 2010 report here:
http://www.citi-habitats.com/media/pdf/RentalMarketReport2Quater2010.pdf
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