High rents expected to peak in 2007
Manhattan landlords shouldn't expect to have any trouble renting their units this year, but they may not get the huge rent increases they enjoyed last year.
Higher rents throughout the borough are prompting some renters to become buyers, brokers said. It's a classic case of a tiny, competitive market recalibrating itself as Manhattan follows its own real estate rhythms.
In 2006, the Manhattan residential vacancy rate remained below 1 percent, according to Citi Habitats. That number rose incrementally to 1.34 percent in February, but given the normal seasonal fluctuations in the rental market, that could be its peak. For the city as a whole, the vacancy rate is expected to increase 10 basis points, or 0.1 percent, to 2.8 percent, according to Marcus & Millichap's 2007 National Apartment Report.
"Going into this year I feel the market is going to continue to go on an upswing," said Gary Malin, Citi Habitats' chief operating officer. "There's still not enough product to take over the demand." Still, Malin and others in the industry say Manhattan landlords shouldn't expect the increases of up to 15 percent -- depending on the neighborhood and the type of property -- which they lapped up last year.
Coming off a record year for Wall Street, employers citywide are expected to add 39,000 jobs in 2007. That's down from the 50,000 jobs created in 2006, according to the Marcus & Millichap report. But newcomers accepting jobs in the city may still have a hard time finding a place to live. This year, developers will add just 3,200 new rental units citywide -- 2,700 in Manhattan, according to Marcus & Millichap.
"You've got pent-up demand caused by a couple of factors," said Peter Von Der Ahe, director of the national multi-housing group at Marcus & Millichap. "A lot of the new developments have been condominiums, and you've seen a loss of inventory because there's been a lot of conversions [from rentals to condos] in the last few years," taking rental stock off the market.
Citi Habitats recently released figures for 2006 that show average rents rose anywhere from around 7 to 26 percent depending on the type of apartment and neighborhood.
Last year, the average monthly rent of a Manhattan studio rose 7.5 percent to $1,825, according to Citi Habitats. Average rents on one-bedrooms rose 9.3 percent to $2,477; two-bedrooms were up 8.5 percent to $3,467; and three-bedrooms were up 13.7 percent to $4,830, according to the firm. On average, studios in Soho and Tribeca rose 20.8 percent; rents on one-bedrooms in Chelsea rose 16.1 percent; rents on two-bedrooms in the West Village rose 24.7 percent; and rent for three-bedrooms in Midtown West rose 26.5 percent.
"My prediction is that the rental market is going to continue to be strong, but it's not going to appreciate 15 to 20 percent like it did in 2006," said Barak Dunayer, president and founder of Barak Realty. Dunayer estimates Manhattan rents will rise 5 to 10 percent this year. Rents have risen so much that many renters who can afford to buy are considering doing so.
"The rental market has become so high and you have all these renters seeing prices going up and up and up. Sales prices didn't really come down, but they are not going up as quickly anymore, and so [renters] are looking at the sales market," Dunayer said.
At Bond New York, principal Bruno Ricciotti sees strength on both sides of the market. He expects the rental market to remain competitive. He said apartments will stay on the market for less time, while rents could continue to rise as the summer progresses. Like Dunayer, he said many people are considering buying after looking at continued high rents.
"People don't know which way to go," Ricciotti said. "We get a lot of renters looking to rent and then we end up selling them something. Both markets are so strong that it's turning renters into buyers and buyers into renters."
But not all renters can meet the stringent requirements of co-ops or afford a condo, forcing many people to remain renters, Malin said.
"That's definitely something people have to be aware of," Malin said. "Just because the rents start to escalate people say that people are going to buy, but just because rent is really high doesn't meant you can afford to jump into the sales market."
Liat Shukrun, rental manager at Anchor Associates, said an apartment in a doorman building that was $2,100 a month in 2005 and went for $2,900 in the summer of 2006 dropped by about $200 a month this past winter. That same apartment will likely get back up to $2,900 a month, but probably won't go much farther, she said.
Still, it's not cheap out there. Recent college graduates coming to the city are still having a difficult time finding places they can afford, she said. Two people might have found a one-bedroom in a doorman building to share for $2,400 a couple of years ago. Today they would have to start out at $3,000, she said.
"I think the city became less and less affordable to young people," Shukrun said. "They are going outside of the city. There are still good deals out there, but not as much as before."
Landlords will push the envelope as much as they can, Malin said. Only when they find it's taking longer than they want to rent a unit -- or they have many vacancies because potential tenants are giving up on Manhattan -- will they ease up.
"Until that happens landlords are going to try to increase rents," Malin said. "Why wouldn't you?"
