During 2008 and 2009 many Manhattan landlords offered a myriad of concessions to lure renters to their properties during a tough real estate and employment market. It was not unusual to see one or two months of free rent being offered in large doorman, rental buildings in addition to an offer to pay the tenant’s broker’s fee. Additionally, many landlords and management companies permitted the free rent to be amortized across the lease term. That meant that if you rented a typical one bedroom apartment in a doorman building in the West Village for $4,000 per month and the landlord offered one month free on a twelve month lease, your “net effective rent” for the year was $3,666.66 per month (that’s [$4,000 x 11] / 12). However, it’s important to recognize that the gross rent (the legal rent) remained at $4,000 per month.
As the rental market strengthened significantly in 2010, most landlords stopped offering any concessions. In fact, in December 2010 only 22% of Manhattan rental transactions offered concessions to the tenant compared to 60% a year earlier. This fact has been talked about frequently in the press, but they haven’t given as much coverage to rent renewals and how they affect existing tenants. Back in 2008 and 2009, many tenants entered into leases, either knowingly or at best vaguely aware, that the rent on a renewal very likely would not include the free rent concession. This past year we have received countless calls from clients (all of whom our team made aware of the significance of net effective rents), who received lease renewal notices raising the rent by 10% to as high as 20% above the net effective rent from the first year of the lease. With the rental market much improved, landlords looked at the gross rent and then added a rental increase on top of that number. To use our prior West Village example (where the vacancy rate hovers around .91%), a landlord in 2010 might have raised the rent about the gross rent ($4,000) by 5-10%. That would mean a new rent of $4,200 – $4,400, an increase of $534 – $734 per month!
Not all landlords tested the market with such extreme increases. However, our team has seen anecdotal examples even in such higher-inventory neighborhoods as the Financial District and the Upper East Side. We often advise our former clients on the current market value of their apartment so that they can make an informed decision about whether to renew or to use that information in negotiations with their landlord. Some landlords have shown an inclination to negotiate to minimize turnover, where others failed to even return phone calls from existing tenants and simply responded with lease termination notices – a far cry from the past years when landlords courted their existing tenants with renovation and rent reduction offers. The point is, if your lease renewal is coming up this winter or spring, you may be surprised by the rental increase, and in the case of market rate apartments – yes, the landlord can do that. It’s important that you do the research to determine if the rental increase is justified by the market. Remember, if the increase is justified, you can expect to pay just as much for another similar apartment in the neighborhood in addition to the transaction and moving costs should you decide to find a new place to live.
- Manhattan dwellers face higher rents, less concessions (nydailynews.com)
- Renters Can Score Great Deals If They’re Smart, Here’s How (blogs.forbes.com)
- Manhattan Apartment Rentals Triple as Tenants Relocate (businessweek.com)
- Apartment vacancies fall to 2-year low (sfgate.com)
- US apartment vacancy rate drops sharply in 3rd qtr (reuters.com)