Manhattan apartment rents surged in the first quarter, coming within about 5 percent of the peak as would-be homeowners struggled to get mortgages and lingered longer in the leasing market.
The median rent rose 7.1 percent to $3,100 a month from $2,895 in the first quarter of 2011, according to a report today by appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. It was the largest year-over-year increase since the second quarter of 2007, when rents climbed 11 percent. The number of new leases in the three months through March jumped 14 percent to 7,621.
“You’re not having a natural transition from rent to purchase,” Jonathan Miller, president of New York-based Miller Samuel, said in an interview. “If credit was rational instead of irrational, at this point we’d see the rental market not climbing at the pace we see now as some of the excess demand would find its way toward the purchase market.”
Stricter mortgage-lending standards and weak consumer confidence are limiting home purchases and driving demand for rentals. Sales of Manhattan co-ops and condominiums declined 3.5 percent in the first quarter from a year earlier to 2,311 deals, Miller Samuel and Prudential said on April 3. Prices fell 0.9 percent to a median of $775,000.
The peak median rent was $3,265 at the end of 2006, according to Miller. Adjusted for inflation, that number is $4,113, or 25 percent higher than the first quarter’s median, he said. That leaves room for rates to continue to climb in the face of surging demand, Miller said.
Party’s Not Over
“I don’t think the party’s over anytime soon,” he said. “Is credit going to ease over the next year or two? Doubtful. Is employment going to ramp up significantly over the next two years? Unlikely.”
New York City’s jobless rate climbed to 10.2 percent in February, the highest in two years, according to James Brown, principal economist at the state’s Department of Labor. That month, 19,700 residents found employment, while 9,500 were unable to do so.
New apartment leases in the quarter swelled in almost every size and price range. Contracts to rent three-bedroom units jumped 21 percent, while studio deals climbed 16 percent. The increase was 15 percent for two-bedroom leases and 14 percent for one-bedrooms, according to the report. Agreements for four- bedroom properties declined 22 percent.
The jump in demand meant landlords were able to push price increases while limiting tenant concessions. In the first quarter, 11 percent of new lease agreements included sweeteners such as a month’s free rent or payment of a broker fee, according to Miller Samuel and Prudential. A year earlier, 37 percent of new deals offered such incentives.
The median effective rent, or what tenants paid after incentives are included, was $3,064, up 9.1 percent from the first quarter of 2011.
Citi Habitats, which also released a report on the Manhattan apartment market today, said average rents hit a record high of $3,418 in March. The previous peak was $3,394 in May 2007, according to Gary Malin, president of the New York brokerage. Neither figure is adjusted for inflation, he said.
“It’s a slow and gradual price appreciation at this point,” Malin said. “I don’t see a meteoric rise anymore. There comes a threshold at which tenants balk and say, ‘I just can’t afford it.’ ”
Joshua Barbieri hit his own record high in March, when he agreed to pay $2,050 for a one-bedroom walk-up in the East Village. Barbieri, 41, who began searching for a new place after a breakup with his fiancee, said that was the best deal he could find for a “clean and fashionable” apartment that was close to Tompkins Square Park and within walking distance of the hair salon he owns and operates on East 18th Street.
Barbieri had to pay a broker’s fee of 15 percent of his annual rent to the Citi Habitats agent who found him the place. While the landlord didn’t offer a free month, he agreed to knock $50 off the asking rent in exchange for a monthly haircut, said Barbieri, who accepted the deal.
“As long as I don’t mess up, that relationship with the landlord is going to be pretty strong,” Barbieri said. “He probably won’t bump up the rent $300. I’m sure he’ll keep it comfortable at a nice price.”
Manhattan’s apartment vacancy rate in the first quarter was 1.22 percent, up from 1.08 percent a year earlier, according to Citi Habitats.
Nationwide, apartment vacancies dropped to 4.9 percent, their lowest level since 2001, as home seizures and a growing pool of young adults forming households boosted rental demand, Reis Inc. (REIS) (REIS) said in an April 4 report.
Across Manhattan, rents at buildings with doormen started at an average of $2,510 a month for studios and were as high as $7,105 for three-bedroom units, Citi Habitats said. Studios in buildings without elevators rented at an average of $1,955, while one-bedrooms in those properties leased for an average of $2,561.