"We are dealing with a much different market than the same time as last year,” said John Parsegian, a senior vice president at Halstead Property who specializes in the luxury rental market.
Indeed. As rental market reports heap seemingly endless piles of bad news on an already jittery industry, it’s becoming clear that the economic woes of the past several months are going to affect every segment of what was, not all that long ago, a resilient and unstoppable Manhattan rental market.
The very nature of this financial crisis, with its origins in the well-heeled corridors of Wall Street investment banks, is likely to drive down rents across the board, but particularly in the ritzy doorman palaces around Central Park and other highly sought-after neighborhoods throughout Manhattan. Suddenly, well-compensated bankers, analysts and lawyers haven’t the stomach to pay $10,000 a month or more on rent.
Let’s put the basement for rent in a high-end two-bedroom apartment at $8,000. In order to qualify for a lease in such an apartment, a tenant will have to earn approximately 40 to 50 times the monthly rent in annual income; in this case, between $320,00 and $400,000. Even if two people split the rent, it would still require salaries of $160,000 to $200,000 per person.
But what’s going to happen now that the city’s financial sector, the primary market for such high-paying jobs, could shed a mind-boggling 48,000 jobs?
“It’s fair to say that people are nervous right now,” said Daniel Baum, chief operating officer of the Real Estate Group New York. Mr. Baum has noticed a surge in vacancies in Chelsea, the East Village and the Financial District, three popular neighborhoods that have a diverse collection of residents willing to pay the inflated rents to live there.
The gluttonous and indulgent era of the past several years, when no rent was too high, is likely finished, supplanted by a drastically more parsimonious environment. Two or three years ago, prospective renters were preoccupied with finding an apartment that offered unnecessary but nonetheless coveted add-ons like in-house gyms or rooftop decks, according to Citi Habitats’ president, Gary Malin. “People now are price-conscious rather than amenity-conscious,” Mr. Malin said. That, of course, has landlords and brokers a little bit anxious as they desperately search for a new equilibrium in a changed marketplace.
In this environment of price-sensitive demand and high vacancy rates, landlords are left with no choice but to lower their rents, even in high-priced, amenity-laden developments. “Pricing properly is everything right now; landlords need to protect their bottom line and prevent properties from languishing on the market,” said Scott Stewart, a senior vice president at Corcoran.
The process has already started in some neighborhoods. According to the November rental report from the Real Estate Group, the average rent for a two-bedroom doorman apartment in the Financial District fell nearly $400 from last November to this November. If vacancies hold at their current levels, or creep up even further, rents could start falling even more, and not just in the overstocked southern tip of Manhattan.
At the tiptop of the luxury pyramid, demand remains surprisingly steady, albeit at reduced rates. To wit: In the middle of October, Mr. Parsegian of Halstead rented a four-bedroom apartment in one of the Trump Tower’s top floors for $23,000 a month. In the past, monthly rent for that same apartment has been as high as $30,000.
Keeping pace with prior months, Mr. Stewart of Corcoran completed three luxury rental transactions in November, which varied in price from $8,500 monthly to $23,000. According to Mr. Stewart, doorman units that offer tenants unique qualities, either in reputation or amenities, will fare better. “Specialty apartments will still demand that higher price,” Mr. Stewart said, pointing specifically to One Beacon Court and the Time Warner Center as such examples.
Cookie-cutter new developments, offering dime-a-dozen amenities and uniform design packages, might have a tougher slog.
“It may take a long time before that inventory is absorbed,” said Mr. Baum of the Real Estate Group.