'There Is Blood In The Streets' In Manhattan's Luxury Apartment Market

When Natalie Minuto started browsing through rental properties this summer, it was more out of idle interest than a serious search. But the hunt became real when she started seeing apartments offering monthly discounts worth hundreds of dollars and months of free rent.

Facing the reality of months of working from home in a corporate job and teaching yoga over Zoom from the living room, her long-held dream of moving out of her shared apartment in Kips Bay to her own place seemed actually within grasp.

“There was one I loved — it was far from the subway, but bigger, on the lower floor of a walk-up," she said. "But it was out of my budget.”

But soon, the asking rent was cut back. And though it didn’t have any months of free rent advertised, Minuto figured she could likely negotiate. She was right. The 26-year-old e-commerce worker for Godiva offered to sign an 18-month lease in exchange for two months of free rent, and after some light back-and-forth, the leasing agent agreed.

Now, Minuto is the proud renter of a one-bedroom apartment in the 70s on the Upper East Side for a price that works out to less than $2K a month. For the first time in her four years in New York, she doesn't have a roommate.

“I realized I’d better jump on this; these rents are amazing,” she said. “And when ever has the power been in the hands of the renter, not the landlord?”

That power shift is now hitting home, and hard, for landlords in New York City, particularly for those with multifamily properties in Manhattan. For years, city renters on the hunt for a home have been squeezed at every turn: paying top dollar, shelling out thousands in cash up front and often making decisions at lightning pace to avoid losing out.

But now, with the vacancy rate soaring — reaching above 5% last month, a record, according to appraisal firm Miller Samuel — sources say September has been the worst month for Manhattan apartment owners since this pandemic began.

Tenants have their pick of the town, and landlords, who have been riding a market characterized by rising population and stagnant housing development for years, are now facing that hard reality, and doing what they can to stop the financial bleed.

“It’s the way the pendulum swings,” said Joy Construction principal Eli Weiss, whose company owns multifamily properties in Manhattan, Brooklyn, Queens and the Bronx. “Right now, if you’re a tenant, you’re the one who has all the power.”

Brokers and landlords told Bisnow that Manhattan — where vacancies are significantly higher than in the boroughs — has had its slowest rental market in recent memory.

In September alone, asking rents have dropped 12% during what is typically the most active time for new leases, according to Sid Gandotra, a Manhattan residential broker for The Corcoran Group.

“It’s at a point where, as a broker, it is hard for me to even believe,” he said.

Listings advertise multiple months of free rent and there is often no broker’s fee. Incentives have long been a key element of the rental market, but sources say they are more prevalent than ever before. Last month, Manhattan had the largest market share of landlord concessions in nearly a decade of tracking, per Miller Samuel.

“All of Manhattan is on fire in terms of concessions,” Gandotra said.

The only areas he has not seen a significant decline in interest and overall asking rent rates have been the West Village and Chelsea, he added.

“It’s mind-boggling," he said.

Listings for two-, three- and four-bedroom apartments across Manhattan — but especially on the Lower East Side, Upper West Side, Upper East Side and Midtown — have seen double-digit percentage declines in rent prices over the past month alone, to far below the rates they leased for a year ago, he said.

A quick perusal of StreetEasy shows a plethora of offers. A studio apartment at 43 West 27th St. is now on the market offering three months free on a 12-month lease, bringing the price to $2,550 per month. Its listing history showed the owner asking more than $3,600 per month in July.

At 40 Grove St., the landlord is offering to pay $150 toward monthly laundry costs on a $2K-per-month apartment. Related is offering up to three months of free rent on leases signed at its MiMA luxury rental building at 450 West 42nd St.

“We’ve never seen anything like this,” said Safdie Realty Group founder and CEO Joseph Safdie, whose brokerage represents apartment tenants and landlords throughout the city. 

Landlords are seeing enormous vacancies with not nearly enough inbound migration to fill the gaps, he said.

The most dramatic loss of demand has been in the luxury sector, Safdie said: His brokerage saw an 18% to 23% year-over-year reduction in rent prices for high-end product.

On the Upper East Side, one of Manhattan’s wealthiest neighborhoods, there are 1,300 one-bedroom apartments on the market, over four times more than the 250 to 300 one-bedrooms that were on the market in the area at this time last year, he said.

This sharp increase in inventory is related to who left the city amid the pandemic: sharers, families and students, Safdie said. This is also why there are greater price drops and concessions in areas that these demographics typically flock to: Upper West Side, Upper East Side, the East Village, the Lower East Side and Tribeca.

The luxury market has put downward pressure on all levels of the market, even though the price drops on smaller, cheaper units are not as dramatic, he said.

“[Landlords] are doing the math and they’re realizing that their net dollar will be better if they keep their rent low rather than waiting two, three or four months.” 

But in some areas, even with months of free rent and an overall reduction, the demand is simply not there.

Joy Construction’s Weiss said when his company dropped rents at its Hudson Yards properties by 15%, it only saw a slight increase in interest. Essentially, landlords like Weiss are holding their breath and pitching those concessions they hope will help them get through what they see as a temporary downturn in the rental market stirred by the pandemic.

“Whatever I can do to buy time — whether it is lowering rent or whatever — is worth it,” he said. “Every lease I sign buys me 12 to 15 months ... I am really just trying to do whatever I can do to build a bridge to get to the other side of this."

Nelson Management Group President Robert Nelson, who owns rental properties across the five boroughs, said during Bisnow’s multifamily digital summit last week he expects it to be a year before the market stabilizes.

“In Manhattan, there is blood on the streets,” Nelson said. “It’s really, really bad in Manhattan.”

He has offered rent deferrals and offered to work with tenants who lost their jobs, but collecting rents has not been his biggest concern.

“We’ve seen a number of people start to move out, and I think that is the thing that troubles me,” he said. “We are talking to our tenants, they are all leaving for the same reason: Most of them are leaving because they lost their job, and they just don’t know when that job is coming back.”

Slate Property Group principal David Schwartz said he is still expecting people who temporarily left this summer to return.

“This is the worst summer and September we’ve ever had,” he said.

Still, he predicted that the more residential areas of Brooklyn and Queens — such as Ditmas Park and Forest Hills — will absorb some of the flight from Manhattan as subway access and a quick commute to the office become less important for the time being.

“We see signs that things are starting to look up,” he said. “It is going to be choppy for a while, maybe the next 12 to 18 months.”

For someone like Minuto, who is readying herself for the move to her new place after four years of sharing, the circumstances present as an opportunity she had not seen coming so soon.

“For the first time, I can actually pay the price I want to pay on a one-bedroom in New York City,” she said. “It felt like a unicorn.”