< All Press

Falling rents are so 2012

Manhattanites hoping that declines in rents that began in the fall would continue or even accelerate, instead got a rude surprise last month. Housing costs rose once again in February, both on a monthly and annual basis.

In Manhattan, median monthly rents in February hit an average of $3,190, up 1.3% from a month earlier, according to a report prepared by appraiser Miller Samuel Inc. for brokerage Douglas Elliman. Meanwhile, in its monthly rental report, brokerage CitiHabitats found that the average monthly rent had risen $32 from January to February, to an average of $3,243. The last time CitiHabitats reported a monthly rent increase was four months ago, in September.

“We weren’t expecting this,” Jonathan Miller, principal of Miller Samuel, said. “The past few months we were mostly seeing nominal changes, 1% or 2%, plus or minus, but before that, things were zooming along at 7% or 8%.”

He described the pace of rent rises as being somewhere “in between flat and robust.” Nonetheless, he said he believes rents will not increase as readily as they did last year. The two main reasons are low interest rates, which make buying an attractive alternative, and a strong city economy.

“Jobs and rents are always closely tied, so whenever there’s an uptick in jobs, we can expect at least a modest uptick in rents,” Mr. Miller said.

Both reports also found that landlords are more eager to lure tenants with concessions, typically a month of free rent or coverage of the brokers fee. At CitiHabitats, the percentage of deals that included some concessions stood at 8%, while Douglas Elliman put that figure at 5.5%, which was still the highest level since December 2011. In some ways, these concessions are helping to prop up rent.

“For a variety of reasons, owners prefer to offer concessions rather than lower their asking rents,” Gary Malin, president of CitiHabitats, said. “Because these incentives are most frequently used in newly constructed, luxury buildings, it caused the average rent to increase month-over-month.

An extremely low vacancy rate also adds to upward pressures on rents, which Miller Samuel calculated at 1.69% in February, the same amount as the year before, while CitiHabitats had a rate of 1.4%, up from 1.25% last year and up 1.37% from last month. Mr. Miller believes low vacancies, combined with difficulties people are having in financing a home purchase, will keep rents high, if not rising.

For those looking for a bit of rent relief the thing to do is to consider buildings that don’t have doormen—but they will have plenty of competition, as others take this root. The median rent for a non-doorman building in Manhattan stood at $2,685 in February, up 10.5% from the same time last year; while rents in doorman buildings averaged $3,475, down 1.7% a year earlier, according to Miller Samuel.

Mr. Miller believes prices in non-doorman buildings are rising so fast because last year’s boom in rental prices caused renters to seek out savings wherever they could.

In Brooklyn, rents were even more volatile, according to Miller Samuel. There, rents in February stood 7.2% above year-earlier levels, at a median $2,590 per month. While this is still considerably cheaper than Manhattan, the hottest of the outer boroughs continues to close the gap. The average price per square foot in Manhattan was $47.12 in February, in Brooklyn it reached $37.

Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
Joined October 2007