Drop In Rents For NYC Luxury Apartments Makes Them Affordable For Masses
Luxury abode in an amenity-laden doorman building has never been closer.
Almost every new building in New York City is described as being “luxury” these days. But what defines luxury? An easier question maybe—what isn’t luxury? An old-school New York brick walk up with endless stairs substituting for an on-site gym, that’s what. According to an analysis by the rent search engine RentHop, as luxury rents drop —due to saturated inventory—and non-luxury rents rise, there is now an overlap. Yes, you can now get an amenity-laden doorman building at the same price as your cockroach-infested walk up.
This is no more apparent than in DUMBO. In the fourth quarter of 2016, the median price of a one-bedroom there was $3,780 a month. A one-bedroom in a non-luxury rental was about 4 percent more, at $3,945 a month. By late summer, the New York Times was proclaiming that “Brooklyn’s Rental Boom May Turn Into a Glut.” By December, Slate was wondering, amid falling rents, if we were, in fact, in a crash. Couple this with the news that landlords have been offering sweeteners like it was Halloween and yes, it does appear that the sliding rental scale of luxury apartments has found itself on one never ending banana skin.
Interestingly, the analysis found that a one-bedroom in non-luxury apartment rentals in the outer boroughs increased, while in the city they dropped 4.76 percent—a sure sign that gentrification is taking hold. Even non-luxury apartments (no doorman or gym) in the hyper congested Brooklyn rose just over 9 percent. When there is a large tumbling of rents—such as the 14 percent that West Harlem took in its luxury condo market—it’s a sure sign that over construction is to blame. Conversely, a 10.9 percent jump to $2,100 for units in buildings without luxury amenities in West Harlem bridges the gap between the two often starkly differing types of rentals.
The drop in luxury building rents is a relatively new phenomenon. At some point, if supply continues to exceed demand, one type of building is sure to effect the other. Tenants will realize that they can get more amenities in a newer building for the same price as an older non-doorman rental. The older buildings will then be forced to drop accordingly. Another product of the rental decrease may see tenants moving from Queens (with the exception of Long Island City) to Brooklyn or Manhattan—as that is where the majority of new rental towers have been constructed and where deals are currently to be found.
The rental and sales markets are often linked. An expensive seller’s market (or an increase in interest rates or tightening of credit) may force potential buyer to remain tenants and increase rents. However, the current market is something of an anomaly because over construction and gargantuan price increases of both condos for sale and rentals have led to a softening in both Manhattan and Brooklyn markets.
Admittedly, February was itself an anomaly. In a generally soft 12 months for Manhattan condo sales, a mighty twenty-four contracts were signed at $4 million and above from February 6-12, according to Olshan Realty’s weekly snapshot of Manhattan’s luxury $4 million-plus market. Last week’s total was ten fewer than the 34 signed the previous week (a record for the first week of February.)
“From record-breaking to back-to-normal, that’s what last week was all about in the Manhattan luxury real estate market,” said Donna Olshan, president of Olshan Realty.
While the early February spike may give depressed brokers a reason for optimism, a more telling statistic was the average number of days a property spent on the market was 461 (up from 368 a year earlier), while the average price reduction from the original asking price was 7 percent.
It all goes to show that it’s not always smooth sailing, even in the land of luxury.