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Gothamites Make Up Difference For Rental Brokers
The current crop of incentives for tenants may not be enough to counteract rising vacancies prompted by layoffs and hiring freezes, but it is bringing a new group of renters into the marketplace: New Yorkers.
For the first time in recent memory, brokers say, city residents are renting new apartments in greater numbers than out-of-towners. The Manhattanites are responding to lower rents and generous perks offered by landlords who are desperate to fill vacant apartments.
The surge is keeping rental brokers surprisingly busy (even while commission checks are shrinking) and helping repair some of the damage caused by the sluggish sales market.
"A lot more New Yorkers are moving around than I have ever seen," said Adina Azarian, president of brokerage Adina Equities. She said some 65 percent of her rental clients are now New Yorkers, up from less than half only a few months ago.
Until recently, the rental market was dominated by newcomers to the city, many of them recent college graduates or professionals relocating to New York from other parts of the country, according to Thomas Demsker, an associate broker at Prudential Douglas Elliman. That was because renting New Yorkers tended to avoid unnecessary relocations that involved high brokerage fees and expensive professional movers, brokers say.
That is no longer the case, said Marc Lewis, the president of Century 21 New York Metro. Now, when their leases are up, many New Yorkers are leaping at the opportunity to look for a new apartment in hopes of getting a better, and cheaper, deal.
"They want to lower their rent," Lewis said, estimating that rents have dropped down to 2003 prices. He said around 50 percent of his firm's clients are now out-of-towners, down from 80 percent last year.
In addition to lower rents, the disappearance of brokers' fees — which are now often paid by the landlord rather than the tenant — makes moving more attractive to New Yorkers who otherwise would have stayed put.
"This is the first time that prices have decreased enough that someone can actually move to upgrade their value, or to downsize," said Bruno Ricciotti, the CEO of Bond New York. "It's easy for them to do so, because owners are paying commissions. They're able to move and not have to cut a check to the broker."
The savings can be significant, Azarian said, even with moving fees included, especially if renters are willing to downsize. One of her clients recently moved from a $3,000-per-month one-bedroom with a doorman to a smaller brownstone apartment without a doorman, saving $900 a month in rent.
Another client moved from a one-bedroom that rented for roughly $2,800 a month to a studio in Battery Park City where the landlord paid the broker's fee and threw in two free months of rent. The new rent was $2,595, but with incentives included it comes out to roughly $2,000, Azarian said.
"If they're willing to compromise and downsize, they can save $1,000 to $1,500 a month, plus incentives," she said. "That's a significant amount of money."
In the current economic climate, many New Yorkers seem willing to accept smaller or less luxurious apartments — moving from a doorman to non-doorman building, or from a one-bedroom to an alcove studio — if it means a significant decrease in rent, she said.
"People are petrified that they'll lose their jobs," Azarian noted, adding that she began to notice more New Yorkers moving about two months ago, after the implications of October's dramatic market swings set in.
Brokers say they've been pleasantly surprised by New Yorkers' sudden predilection for moving, which is helping to make up for a steep drop-off in apartment sales and the drop-off in out-of-town renters.
"We're extremely busy on the rental front," said Daniel Baum, the COO of the Real Estate Group New York.
The firm has done roughly the same number of rentals this year as last year, he said, despite the economic downturn, a fact he attributes to the number of New Yorkers shuffling apartments.
"We were busier in December than I expected us to be," he said.
"A lot of people looked at December as an opportunity to downsize, or find opportunities they didn't have before," Baum added.
At Bond New York, Ricciotti said rentals in October and November were very slow, but December and January have seen more rental transactions than the same period last year.
"We're experiencing a much higher volume," he noted, adding that rental revenue for those two months has exceeded last year's profits. "I hope it keeps going."
Christine Ra, a sales agent at City Connections Realty, said she's been so busy with rentals — many of them for New York families looking for cheaper rent — that she recently had to hire an assistant.
"My business has been so busy that I'm actually shying away from sales," said Ra, who specializes in Upper Manhattan.
She said she recently helped a couple with two young daughters relocate from the Upper West Side to a cheaper apartment in the Westbourne, a rental building on West 137th Street.
Still, for most companies, the relocating Gothamites are not enough to stop the bleeding entirely. For one thing, the uptick in business doesn't mean brokers are making more money, thanks to lower rents and lower commissions. Instead, many find themselves running in place.
Azarian, whose business is almost entirely rentals, estimated that she did 30 percent more transactions this December than the same month a year ago, helping to make up for lower rents. "As long as you're making it up with a few more transactions, you're OK," she said.
Another factor is that brokerages that previously depended on sales for a large percentage of their profits have been wounded by a slowdown in sales and decrease in prices. In the fourth quarter, the number of sales in Manhattan fell 9.4 percent from the same quarter the previous year, according to real estate appraiser Jonathan Miller, the president of Miller Samuel.
The Real Estate Group New York, which made 60 percent of its 2007 core revenue last year from sales, is one of many firms that may have a harder time, despite a large amount of rental activity, Baum said.
"Our numbers may not be what they were last year, because we won't do the same number of sales," he said.
"From a volume standpoint, we're doing a tremendous amount of rentals compared to sales," Baum added. "But from a dollar standpoint, they're both suffering."