Landlords are still running the show when it comes to the Manhattan and Brooklyn rental markets, data from September’s Elliman Report suggests.
The report, drawn from city-wide rental data, shows continued tightness in the market, with rising median prices, falling vacancy rates, and landlord concessions becoming a rarity.
Tight credit markets and strong job growth are the two biggest drivers contributing to strength in the market, said Jonathan Miller of Miller Samuel Inc., who compiled the data.
Despite low mortgage rates, tight credit is “tipping the market so people who organically would have flowed into the purchase market aren’t able to,” he said.
As previously reported by Real Estate Weekly, tight credit markets are limiting buyers mostly to the lower end of the purchase market.
At $3,195 (face rent), September median prices increased 10.2 percent from last year and 3.2 percent from last month; and vacancy rates fell to 1.85 percent from 2.62 percent last year.
Job growth is having “almost a kneejerk response” on the rental market because renting is a smaller, simpler and faster transaction than buying a home, Miller said.
Despite unemployment rate increases reported by the U.S. Bureau of Labor Statistics, which have been disputed, private sector employment in New York City rose by 93,100 jobs, or 2.9 percent, to 3,320,900 for the 12-month period ending August 2012, according to data from the New York State Department of Labor.
An August report from Eastern Consolidated put the job gains since the depths of the recession at 205,000.
Most sectors grew over the last year, with professional and business services accounting for about a third of all job gains, and leisure/hospitality and educational/health services placed a distant second and third.
“Over the long haul the most important metric to watch is employment figures,” said Michael Guerra, Elliman’s EVP and director of sales in Brooklyn. “When employment is robust we see an increase in demand. It drives part of your low inventory and part of the upward price structure.”
Job growth is likely to continue over the next couple of years, as is tight credit fueled by interest rates that are expected to remain low through early 2015, Miller said.
So barring an unforeseen economic calamity, and despite new development that will likely temper gains, the upward pressure on prices will likely continue, he added.
Concessions are another “sign of who’s in the driver’s seat,” falling from 8.6 percent to 2 percent over the last year, Miller said.
“It’s virtually a non-factor and its been like that for six months,” he said, sifting through 20 years of data to recall a time when concessions were offered on 40 percent of transactions and were so pervasive that landlords were offering two and three months of free rent.
Though the data shows that the number of rentals is up 54.5 percent since last year, the spike does not represent a flood of people entering New York to rent, but more likely a surge moving out of apartments and finding cheaper alternatives, he said.
In Brooklyn, the rental market remains tight due to many of the same factors impacting Manhattan – mainly tight credit and employment growth.
Though the report shows that median prices slipped 2.1 percent from year ago levels to $2,350, the numbers do not reflect just how tight the Brooklyn market actually looks on the ground, Guerra said, adding that “mom and pop” buildings in Brooklyn are among the most difficult to track.
“The real story in Brooklyn rentals is that we are at or above pre-recession levels in the rental market,” Guerra said. “There are neighborhoods in Brooklyn that are as much a destination for people coming to live in New York City as areas of Manhattan, so it’s not a second choice, it’s a first choice for some.”