(Bloomberg)—Manhattan apartment landlords, entering the prime leasing season, are boosting incentives to lure tenants as a surge of new supply gives renters more choices and the chance to bargain.
Deal sweeteners, such as a month of free rent or payment of broker fees, were included in 13 percent of new leases in May, up from 1.6 percent a year earlier, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The share was the highest for the month since the data began in late 2010. Landlords also whittled an average of 2.1 percent from their asking rents to strike a deal.
New York leasing typically jumps from May through August as new college graduates move to take jobs in the city and families seek living arrangements ahead of the school year. Apartment owners who normally leverage that demand into higher rates and fewer incentives are finding their pricing power eroding, after a four-year run-up in rents that have stretched beyond what tenants can pay. Rising supply -- which prompted landlord Equity Residential to cut its revenue forecast last week -- is giving renters the advantage.
“May usually represents the bottom of the season for discounts and concessions,” said Jonathan Miller, president of Miller Samuel. “The rental market has clearly been softening over the last year.”
Landlord concessions last month didn’t always pay off. The number of new lease agreements signed fell 14 percent to 5,099 and the vacancy rate shot up to 2.51 percent, tied for the highest for May in data going back to late 2006. The median rent was little changed at $3,400, Miller Samuel and Douglas Elliman said.
“Historically, this is the time when owners are more in control of the market,” said Gary Malin, president of brokerage Citi Habitats. ”The pricing that owners want is too out of reach for most.”
Citi Habitats, which released its own report on the Manhattan rental market Thursday, said that 17 percent of all new leases it brokered last month carried some form of landlord sweetener -- the most for May since 2010, when the rental and job markets were still climbing from the slumps of the recession. The brokerage estimates that average Manhattan rents climbed 1.2 percent to $3,518 -- mainly because landlord enticements are being used in lieu of actually lowering rates.
“The concessions are making the market appear stronger than it actually is,” Malin said.
Shares of publicly traded apartment owners have tumbled since Equity Residential cut its expectations for revenue growth for the second time this year, saying rates in Manhattan and San Francisco aren’t meeting its projections. The Chicago-based real estate investment trust -- which predicted in April that its use of concessions would fade -- has fallen 7.1 percent since May 31, the day before the announcement.
Jefferies Group on Wednesday downgraded Equity Residential as well as AvalonBay Communities Inc. from buy to hold, citing those companies’ exposure to Manhattan and San Francisco. Analyst Omotayo Okusanya also cut the outlook for publicly traded apartment landlords from positive to neutral because of a slowdown in key coastal markets.
In Manhattan, 5,675 apartments will be added to the rental inventory in 2016, according to Citi Habitats. Luxury-condominium owners are also boosting supply by putting their units on the rental market.
Rents for the top 40 percent of the Manhattan market -- anything above $3,695 -- declined in May, according to Miller Samuel and Douglas Elliman. Apartments spent an average of 43 days on the market, compared with 41 days a year earlier.
“There’s just a point where the math doesn’t work for the consumer,” Miller said.
For Douglas Elliman rental broker Or-Eli Kashi, landlords’ willingness to work with tenants has been evident in recent lease deals. Clients from Kentucky who applied for an apartment on a Saturday were approved within hours and had the keys the next day, she said. Another client who sought a unit in a newly constructed building but didn’t have the ideal credit profile to qualify, eventually did get approved -- and got a month’s free rent with the lease signing.
“People are getting approved much quicker than they did in the past,” Kashi said. “We used to wait two business days. The last four clients I had, we heard back from the landlord within hours.”