- Last month, luxury median rental price declined in Manhattan 4.2 percent from February 2015 to hit $8,000 per month.
- Across all apartment tiers, rent increased just 0.2 percent year-over-year as of Feb. 2016 to reach a median price of $3,382.
For-sale developments aren’t the only real estate constituent facing steady declines — rentals are softening, too, according to the latest Douglas Elliman report, authored by appraisal and New York real estate expert Jonathan Miller.
Last month, luxury median rental price declined in Manhattan 4.2 percent from February 2015 to hit $8,000 per month. Last February, the median price for Manhattan’s priciest apartments was $8,350 per month.
Luxury unit prices dropped annually, and a 0.1 percent increase between January and February of this year was likely an affect of seasonality. As spring approaches, the apartment-hunting season heats up, too.
Rent increased faintly year-over-year; declining month-over-month since August
Across all apartment tiers, rent increased just 0.2 percent year-over-year as of Feb. 2016 to reach a median price of $3,382. Although the annual mark shows a faint uptick, prices have continued to decline since August 2015 on a monthly basis.
“My barometer for this is year-over-year median rental price,” said Miller. “Rents have been rising, but every month they are rising at a slower pace. We’ve gotten to the point where it’s essentially flat.”
Even more pronounced is inventory, which increased 19.1 percent across all apartment prices between Feb. 2015 and Feb. 2016 — from 5,164 to 6,151 units on the market.
“What you have is generally a rental market that’s seeing growing supply at the top of the market and very modest growth to no growth in supply at the bottom of the market,” Miller said.
Queens and Brooklyn high-end rental prices
Like Manhattan, Queens luxury apartments dropped in price, from a median $4,500 last February to $4,345 this February, or a 3.4 percent yearly drop. For new development in Queens, however, prices grew 4.7 percent year-over-year, from $3,202 to $3,351 per month.
“I think really what’s keeping the rental market on the soft side at the high end is something that is many people have factored in — it’s that in 2015 we had a slew of closings. It takes a couple years to get these buildings finished,” said Miller.
“You have a tremendous amount of condos. They don’t have to be $3 to $5 million condos. When a building closes, you have 50 units of the same size, most of them with investors looking for tenants – that softens the market.”
In Brooklyn, the median rental price for luxury apartments grew 7 percent year-over-year, from $5,000 to $5,349 per month. And for new development, the median rental price grew 10.3 percent — jumping from $3,125 last year to $3,446 last month.
“Even though we had an uptick in the luxury market in Brooklyn, the general pattern has been a decline or flat in Brooklyn. One data point does not make a trend. There may be some of that, in all the markets that we’re looking at, [but] the skew has been toward the high end in terms of supply. It doesn’t mean that rents are inexpensive, they are just bumping along at a high level,” said Miller.
Moreover, the use of concessions from landlord more than doubled in February. In 19.1 percent share of the market, rental transactions involved some sort of concessions from landlords, whether they paid brokerage commissions or offered a free month’s rent. Concessions stood at just 9.2 percent last year.
Softening not related to one single aspect or trend
As with sales, the upscale rental market in NYC is dynamic, and its softening isn’t related to a single aspect or trend. As Miller points out, both condos and rentals have been focused on the high-end tier due to initial cost versus long-term reward. More developers turn to building luxury residential properties because of high-yielding returns, especially since materials, taxes and land acquisitions are so expensive.
But the more supply in luxury units and developments, both in for-sale and rentals, the less demand.
“There’s been a lot of closing volume, on top of just new construction volume for rentals. The combination of heavy new developments in condo units for investors, combined with new development luxury rental units, all being skewed toward the high end of the market have made the high end of the rental market soft as a general rule. This is true when we’re talking about Manhattan, Brooklyn or Queens,” said Miller.