Photo: Robert Clark
A flood of new rental inventory forced more NYC landlords to use incentives to fill units in January.
And as a result, the net share of new leases that contained incentives soared to record-highs in Brooklyn, Queens and Manhattan in January.
The use of incentives was prevalent across the entire market in January, not just confined to the upper price tiers. That’s according to a new report released today by New York brokerage Douglas Elliman.
Over the last month, the net share of new leases that contained incentives in Manhattan rose from a previous high of 36.2 percent in December to 49.3 percent in January. The increase is consistent with the sharp decline in the vacancy rate, which fell rom 2.35 percent to 1.9 percent in January.
Incentives are typically a period of free rent. Landlords use incentives to keep units occupied, which in turn keeps the vacancy rate down (as seen this month in Manhattan). Some landlords have begun luring new tenants with more high-tech incentives like Netflix subscriptions and Amazon gift cards.
“Incentives are here to stay for several years, enabled by the influx of rental units entering the market,” Jonathan Miller, CEO of the appraisal firm Miller Samuel, and the author of the report, tells BuzzBuzzNews.
And while listing inventory was down 18.3 percent from last year in January, the number of leases skyrocketed 37 percent.
A high number of new construction “high-end” or “luxury” units continued to enter the Manhattan market in January, which has helped to “mask” price declines occurring in the top price tier.
“The new development rental pipeline keeps pushing product into the housing stock and with its critical mass, it is skewing price trends higher than they actually are,” Miller says.
And elevated inventory is causing landlords to respond with increased use of incentives — and not just at the “top” but across all price points.
“Incentive usage is defining the market at the moment. We may see some uptick in demand skewed to the high end of the market as potential buyers look to delay their purchase decision until they are comfortable in understanding the eventual impact of the new federal tax law is on the luxury market,” Miller says.
The median rent of a Manhattan apartment slipped 2.8 percent from last year to $3,275 in January. Median price annual decreases were recorded across all size-submarkets in January. The largest decrease was recorded in the three-bedroom and up submarket, where the median rent fell 10.7 percent to $4,911 from last year in January.
The decline in the median rental price combined with record levels of incentives resulted in the largest annual decline in more than six years in the median effective rent. Median net effective rent fell 3.6 percent from last year to $3,141 in January. (“Net effective rent” refers to the total amount a tenant will pay after adjusting the asking rent for incentives.)
Meantime, the share of leases in Brooklyn with incentives rose to 47.5 percent from the previous month — hitting a new record for the second consecutive month. Since January 2017, new highs have been recorded four times on this metric.
The median rent remained unchanged from last year at $2,750 in January. Listing inventory dropped 21.4 percent annually, and the number of new leases jumped 42.1 percent as a result of a wealth of new construction units coming to the market in January.
“The Brooklyn rental market continued to weaken as new supply entered the upper-end of the market,” writes Miller in the report.
Similarly, in Queens, the use of landlord incentives hit a new record in three of the last six months. Over the last month, the net share of new leases that contained incentives rose to 50.8 percent from 50.2 percent.
Net effective rent declined 4.7 percent from last year, marking the fifth year-over-year decline recorded in the last six months. At the same time, the median rent dropped 1.9 percent from last year to $2,650 in January.
The number of new leases rose 43.2 percent from last year as a slew of new construction apartments came to market in January.
Click here to read the reports.