Is a Warming Rental Market in Manhattan a Sign of a Better Economy?

Everyone I speak with in the Manhattan real estate industry says the same thing: the volume of their business is up. As a broker, I'm trying to figure out why.
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A few weeks ago I had what seemed like a straightforward deal: two young professional women were looking for a two-bedroom share in the West Village. For $2,800, we found a 900 square foot third floor walk up. One of the bedrooms was larger than the other, but it was a great starter apartment.

There was just one issue: About 15 other people showed up for the open house. In the middle of January. Three other pairs of room mates also applied. In the end, my clients didn't get the place, even though they offered a year of rent up front.

A smash and grab for a West Village apartment isn't common in winter, but I figured it was a fluke. Then last week I had another client, a young attorney, who found a great studio in Murray Hill with a backyard. He was one of three applicants. Since he had the most steady job, he got the apartment. The landlord, however, started the lease on February 15, and not March 1, as he would have liked.

After three years in New York City real estate, I've learned to manage the seasonal ebb and flow of the rental market. Winter tends to be slow. Everything revs in the summer. September is my busiest month.

This year, though, I'm twice as busy as I usually am. I've scurried around trying to fit in two lease signings in one evening. I can be booked for the weekend as early as Wednesday. Everyone I speak with in the industry says the same thing: the volume of their business is up. These results are not typical. As a broker, I'm trying to figure out why -- and what this means for the peak seasons of spring and summer, if not all of Manhattan.

Unemployment in Manhattan is down: According to the most recent data, unemployment in New York City is at 8.9%, just below the national average of nine percent. This is important, because if you have a job you can rent an apartment in Manhattan.

A lot of new hires are coming to Manhattan: Although the numbers go up and down each month, the private sector added more jobs in 2010 than it did in 2009. We're barely two months into 2011, and I've rented places to at least three new hires, some of whom have come from overseas. In September, which is always my busiest month, new attorneys fresh from taking the bar, are the largest chunk of my business. Logic dictates that all these new hires need a place to live and have been filling up any holes in the inventory that may have been lingering in the rental market.

All this leads to fewer incentives for tenants: Last week a repeat client called me and said she needed a new place to live. For a variety of reasons, it had to be no-fee. I knew her tastes well, and I worried we wouldn't be able to find one, or at least one that didn't require her to pay at least a small portion of a broker's fee.

Overall, landlords are offering fewer incentives, even now, in the middle of winter. The reasons are two-fold: first, as I mentioned earlier, they're renting them fast enough that they don't need to sweeten any deals. The second is residual from the financial crisis of 2008. Even as recently as a year ago, owners were happy to throw in a free month or pay my fee if it meant that they could rent the unit quickly. In the end, though, it hurt their bottom line. They now need to recoup those costs of lowered rents and free months in order to keep their rent rolls up, which is key for when they want to sell a building. That means fewer freebies for the tenant.

I'm also hearing stories of people who moved into some of the fancy glass and steel towers along the West Side whose rent was raised considerably since moving in two years ago, despite getting two to three free months when they moved in. The house always wins, kids.

There is less inventory due to lack of turnover: After the financial crisis in 2008, people in Manhattan got pretty good deals on rental apartments. Not rock bottom prices, but the people I rented to were getting at least $200 off the monthly rent.

Since these people, as well as many others in Manhattan, got such good deals, they haven't moved. There are certain buildings in Manhattan that I like to keep an eye on, and this year I'm not seeing as many openings in them as usual. For instance, there is a wonderful building on 55th Street and First Avenue where two of my friends have lived. I could count on one hand all the openings I've seen in there since this summer, and this is a building that usually has at least one $2,000 studio available at any given time.

Citi Habitats also watches buildings as bellwethers of the industry. In a June 2010 piece in the New York Times, Citi president Gary Malin said that the company uses certain buildings as a snapshot of what landlords are charging and how quickly apartments are turning over. Since April of 2010, Malin said in the article that prices have increased by 20% in the bellwether buildings.

There are plenty of official economic indicators: retail sales, the Consumer Price Index, etc. Since all economics is local, though, there are other indicators that aren't officially covered but are just as important. I think the rental market in Manhattan is one of those areas. It tells us who's coming and going and what they're willing to pay for the most basic of needs -- housing. Sales are too complicated in Manhattan because there are many other factors involved in a sale, such as persnickety co-op boards or new development condos that prefer cash buyers at first. The rental market is the most vast and the most simple measure we have. According to what I'm seeing now, it would seem that Manhattan is on its way up economically -- and that's good news for everyone, not just the brokers.

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