At Last

On the second-to-last Sunday in August, an open house for a four-bedroom, $11,000-a-month apartment in Chelsea was canceled and two Upper West Side open houses, also for rentals, were largely empty, barring the presence of nervous brokers.

Steven T. Little, a Halstead Properties sales associate, was showing one of the Upper West Side apartments, a two-bedroom prewar on 72nd Street. Just one couple came to see it that day. The previous weekend, only a handful of prospective renters visited the apartment. One block south, another Halstead broker was showing a two-bedroom that has problems of its own: The price, originally listed at $6,000, now stands at $5,600. Mr. Little is a five-year veteran of the Upper West Side market, and is quick to blame the lackluster foot traffic on the time of year, claiming that August is always a slow month.

Perhaps that’s true, but rents in August 2008 are shaping up to be much lower than last year’s. This August tumble is not confined to any one month; in fact, June and July rents were also substantially lower than last year’s. Nor is this summer swoon confined to any particular type of apartment or building, leaving some real estate analysts convinced that the market might be headed for a fall or winter drop.

According to market reports from the Real Estate Group New York, Manhattan rents on studio, one-bedroom and two-bedroom apartments, in both doorman and non-doorman buildings, are lower this summer than last, although there were some modest increases in May 2008 compared to May 2007. Using REGNY’s data, The Observer found that the average rents for studio apartments in doorman buildings during August 2008 are 8 percent lower than in the same month in 2007.

Daniel Baum, COO of REGNY, is concerned about the flagging rental figures. “We never have a weak August; it is supposed to be one of the strongest months of the year. It is not a good indicator that the market is down in the strongest season of the year.”

(Note: The 2008 numbers include Harlem; the 2007 data does not. Harlem rents are lower than the rest of Manhattan’s, and The Observer found that leaving in the lower rents increases the difference in ’07 and ’08 rents by approximately 3 percentage points across the board.)

In June 2008, the average rent for a Manhattan two-bedroom apartment in a non-doorman building was $3,950, 6.5 percent less than in June 2007; average one-bedroom rents in doorman buildings were 3.9 percent lower in July 2008 than they were in July 2007.

While it may be becoming less expensive to rent an apartment in Manhattan, some brokers are hesitant to go as far as to label this a renters’ market. “It’s difficult to call it that,” says Sepp Seitz, a Halstead broker active in midtown west and Chelsea. “If you look at rents here, they are incredibly higher than elsewhere. There is still low inventory, and what is renting is going very quickly.”

Then what, exactly, is causing rents to drop now? Some of the blame, at least according to Mr. Baum, rests with overzealous landlords determined to squeeze “every last penny” out of their units. A few months ago, landlords started offering renters concessions such as free building services or one-off monthly reprieves on rents, all in the hopes that these temporary measures would keep demand high and vacancy rates low.

While those tricks proved effective for a time, they’ve failed to outlast the crummy economy, and landlords are forced to face the unhappy truth, already having played their hand. In order to prevent more vacancies and steep rent drops, there must be a marginal decrease in rents.

The Upper West Side, one of Manhattan’s most stable markets, is a good example of what lies ahead for the overall market. In the current REGNY August report, the average rent for a one-bedroom apartment in a doorman building is $3,481, largely unchanged from the $3,477 of a year earlier. The stagnant market has brokers worried that a downturn lies ahead. Even Mr. Little—who calls the Upper West Side a “high demand market”—predicts the ever-popular nabe will experience rent chops of around $200, adding that “prices are negotiable.”

The summer of 2008 may very well be the crest of a very long and profitable wave for Manhattan landlords, an era otherwise defined by perpetual rent increases, low inventory and high demand. That dynamic may soon change, but may not last as long as renters would hope. “I expect 2009 to be a renters’ and buyers’ market,” says Mr. Baum. “A correction is going to happen, and we’ll eventually get back to what we once were, which is an ever-climbing price market.”

At Last