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Rents increase as landlord concessions fade

New York by Gehry, Roland Li for Real Estate Weekly

By Roland Li

The Manhattan rental market saw rents climb and landlord concessions decrease in the first quarter, compared to the previous year, according to reports released on Thursday from Prudential Douglas Elliman and Citi Habitats.

Citi Habitats, which based its data on the firm’s closed transactions in the first quarter, reported an average rent increase of 12% compared to the first quarter of 2010. The Manhattan vacancy rate was 1.08% in the first quarter, down from 1.45% in 2010. In March, the brokerage reported a 0.99% vacancy rate, the first time the figure had dropped below 1% since July 2010.

Concessions, which typically include free months of rent or payment of brokers’ fees, fell to 17% in the first quarter, down from 44% from the same period in 2010, according to Citi Habitats.

The increase in rents and drops in vacancy rate and concessions are positive signs for the market, said Gary Malin, president of Citi Habitats, mirroring improvements in employment and the stock market.

“I think the economy is in a much stronger position,” said Malin. “Although it’s going to cost more to live here, if you look at it on a macro level, it’s a good thing. That means good things are happening here.”

New developments have also demonstrated that renters are willing to pay a premium for amenities that were previously confined to condo buildings, narrowing the gap and attracting longtime buyers to rent.

Citi Habitats is representing one of the most prominent new buildings in the city, 8 Spruce Street, the 76-story tower designed by Frank Gehry, where rents range from $2,685 per month for studios to $20,000 for larger units. Activity has been brisk, said Malin, but exact figures weren’t available.

Citi is also the agent for the Costas Kondylis-designed Continental at 885 Sixth Avenue, which around 45% rented. Developer J.D. Carlisle’s Beatrice at 105 West 29th Street has its 301 units almost fully leased, and Extell Development Co.’s Upper West Side developments the Ashley and the Aldyn, which is part rental, part condo, have commanded high rents.

Malin said that downtown neighborhoods, including Chelsea, Tribeca and Greenwich Village, were performing especially well.

Prudential Douglas Elliman’s report, prepared by appraisal firm Miller Samuel, also reported positive market indicators. Although median rental prices fell 6.6% to $2,895 per month in the first quarter compared to $3,100 in 2010, a decline in landlord concessions brought real rents down.

Tenants actually paid a median rent of $2,808 per month, after factoring in concessions, a figure that was 7.4% higher than the median price in the first quarter of 2010. Price per s/f was up a 20.3% to $47.62, compared to 2010, after considering the change in concessions.

“Concessions were down tremendously,” said Yuval Greenblatt, an executive vice president of Elliman.

Greenblatt cited the improved economy, as well as the absorption of thousands of units built over the last two years, to tightening inventory, which is likely to led to more increased rents. And while there are some sites, such as Hudson Yards, that should see new construction, Manhattan is likely to remain a supply constrained market in the foreseeable future, he said.

“There’s never enough construction to meet the population we have,” said Greenblatt.

Jonathan Miller, president and CEO of Miller Samuel and author of the report, warned that the positive indicators should not suggest that another peak is imminent.

“I don’t want to characterize the market as a runaway, booming economy,” said Miller. “I’d describe the market as just above equilibrium, somewhat more in favor of the landlord.” He added that rents are expected to rise next quarter, as the spring season is typically busier.

“I think the most important thing is, tenants have to realize the market has rebounded,” said Malin of Citi Habitats. “And they have to act.”

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