NYC Landlords Feel The Pain As They Offer Incentives In Record Numbers
Overconstruction means potential tenants can pick and choose where they want to live.
If there’s one thing landlords hate more than throwing in a free month’s rent, it’s a vacant apartment. That’s why record numbers of them in Manhattan and Brooklyn are including giveaways like a free month or the payment of broker fees in order to get leases signed.
The construction boom throughout NYC has resulted in an inevitable deluge of new apartments now on the market. As a result, potential tenants have the luxury of being able to pick and choose where they want to lay their head at night. New York landlords, often perceived as fat cats squeezing tenants dry with demands for upfront payments and multi-year leases when available apartments were scarce, are now having to grovel to get qualified renters to put to paper.
The portion of new leases signed with concessions reached a new high for the fourth straight month. In January, Bloomberg reported, 31 percent of contracts came with landlord incentives—the biggest share in more than six years of data-keeping by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.
“They know they have to,” Hal Gavzie, executive director of leasing for Douglas Elliman, told the media organization. “As landlords and owners, they would much rather not do it. But you have tenants and renters who are resisting the price increases, and this is now where things are.”
Incentives, inducements—or plain old bribery—works, apparently. Citi Habitats said that 37 percent of deals the firm brokered in January came with some landlord incentive, the highest share it’s tracked since April 2010. With these in place, Manhattan’s vacancy rate declined to 1.9 percent, the lowest since October, when it was at the same level.
Landlords take a double hit when prospective tenants inform a broker they don’t want to pay their fee. A deal breaker under normal circumstances, landlords are covering the cost. The key in lean times for management companies and landlords is keeping a building full. Nothing sets of a stench like a partially empty building. Tenants aren’t going to advertise what great incentives they received. As far as outsiders are concerned, everyone is paying market rents. Once committed, landlords have tenants locked in for a year or two, by which time the market may change and they can get renters to renew their lease with an increase thrown in. Should, however, the market continue to falter inevitably incentives will only go so far. Rents will drop.
This has already happened in Brooklyn, NYC’s most populous borough, where rents have dropped regardless of the tripling of incentives in January from the year earlier. The median face rent slipped 1.9 percent from last January to $2,750. The decline was 2.8 percent, to $2,702, with concessions factored in. The inventory of available listings in Brooklyn surged 25 percent to 2,459, the firms said.
For once, the rent may not be too damn high.
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