‘Capital Insights’ with Jack Kern: New York City Rents Stable but Still Down Y-O-Y

Sometimes, the power curve shifts and the resident gets to call the shots. Reminiscent of the Godfather, 1972 when Michael Corleone talks about how his Father made an offer the band leader couldn’t refuse, residents are seeing the benefits of negotiating lower rents (without horses or large menacing guys like

Sometimes, the power curve shifts and the resident gets to call the shots. Reminiscent of the Godfather, 1972 when Michael Corleone talks about how his Father made an offer the band leader couldn’t refuse, residents are seeing the benefits of negotiating lower rents (without horses or large menacing guys like in the movie).
 
Rents for doorman buildings, according to the latest release from the May Manhattan Rental Market Report (see www.tregny.com ) showed these declines:

Studios – down 9.84%
One BR – down 8.96%
Two BR – down 4.53%

Rents for non-dorman buildings performed this way:

Studios – down 4.27%
One BR – down 7.06%
Two BR – down 5.99%

According to the report, prices and service offerings are the best on the Upper East Side, Harlem and the East Village. What this report points out and others like them, is that rental rates have dropped in most investment grade markets and the resulting declines are beginning to show up in concessions.

I happened to take a look at some of the larger owners and in the Los Angeles area, for comparison, according to data provided by Pierce-Eislen (see www.pi-ei.com ) rent declines exceeding 5% are typical on a year over year basis at May for AvalonBay and Archstone among many others. Interestingly Equity Residential was down under 3% for a comparable period.

Renters have the upper hand right now and it will take a while to get pricing power back into the hands of the owners. Rent reductions at an effective level of as much as 15% when factoring in concessions are evident in some places too. This problem isn’t going away anytime soon.

It might help your leasing staff if they start smoking cigars and wearing striped suits with fedoras. After all, it worked in the movie.

(Jack Kern is the consigliore of Kern Investment Research, LLC, a market research firm and olive oil importer, and specializes in making sure clients get exactly what they want. He can be reached at 301.601.1900 or JKern@KernIRC.com.)