(Bloomberg) -- Manhattan landlords, who for years pushed apartment rents to ever-higher levels, now keep setting records of a different kind: the giveaways they offer to tenants.
The portion of new leases signed with concessions, such as a free month or payment of broker fees, reached a new high for the fourth straight month. In January, 31 percent of contracts came with landlord incentives, the biggest share in more than six years of data-keeping by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The previous record, set in December, was 26 percent, which topped November’s high-water mark of 25 percent.
“They know they have to,” Hal Gavzie, executive director of leasing for Douglas Elliman, said in an interview. “As landlords and owners, they would much rather not do it. But you have tenants and renters who are resisting the price increases, and this is now where things are.”
A swell of apartment construction in Manhattan has crowded the marketplace with choices and given tenants leverage to negotiate -- and walk away. That means landlords must work ever harder to keep their units from going vacant and appeal to consumers on the hunt for the best deal. Publicly traded landlord Equity Residential, which has 26 buildings in Manhattan, said in its earnings call last week that it’s resorted to offering gift cards as an additional perk at some of its properties to keep up with the competition.
In January, a month in which new rental listings climbed 14 percent from a year earlier, owners offered discounts averaging 3 percent off their asking prices, Miller Samuel and Douglas Elliman said in their report Thursday. Deals were sweetened further with concessions valued at an average of 1.3 months of free rent.
“Tenants feel to some degree that the market is more to their favor,” said Gary Malin, president of brokerage Citi Habitats, which also released a report on Manhattan rentals Thursday. “They’ve kind of grown, over the last five or six months, to expect a concession in certain types of buildings, and without them, they won’t transact.”
Citi Habitats said that 37 percent of deals the firm brokered in January came with some landlord incentive, the highest share it’s tracked since April 2010. The lures appear to be working: Manhattan’s vacancy rate declined to 1.9 percent, the lowest since October, when it was at the same level.
These days, it’s not uncommon for apartment seekers to tell Citi Habitats broker Adam Franklin that they don’t want to pay the fee for his services. Usually, that would be a deal-breaker for him, but now there are plenty of new buildings he can show clients where the landlords will cover his costs, and then some, Franklin said.
That’s what happened in a deal he arranged last month for a Long Island couple, who signed a lease for a two-bedroom apartment at aalto57, a newly constructed tower at 1065 Second Ave. The landlord offered a month of free rent on a 13-month lease, but the couple, having toured many new buildings across Manhattan, asked for more, Franklin said.
The landlord threw in an extra free month -- on condition they sign a two-year lease for the $8,150-a-month unit. And when they declined that longer commitment, the landlord came back with two months of free rent on a 14-month lease, effectively lowering their cost to $6,985.
“The numbers have to make sense to them because many other buildings are offering incentives,” Franklin said.
The behind-the-scenes dealmaking not only helps fill units, it’s also allowing Manhattan landlords to mask a weakening market, and hold on to their official face rents for when times get better, said Jonathan Miller, president of Miller Samuel. In January, the median face rent -- the price without incentives -- was $3,369, an increase of 0.6 percent from a year earlier, Miller Samuel and Douglas Elliman reported. With the value of concessions subtracted, however, the median was $3,259 -- a decline of 0.1 percent.
Such tactics to prop up the market can only go on for so long, Miller said.
“Right now, it’s working,” Miller said. “The vacancy rate is not growing like it was before. But when vacancy begins to rise again, the face rents are going to drop.”
In Brooklyn, where landlords are also contending with a swarm of newly built apartments, concessions more than tripled in January from a year earlier, reaching a record share of 18 percent of new leases, Miller Samuel and Douglas Elliman said.
Rents in the borough, New York City’s most populous, fell regardless of whether concessions were accounted for. The median face rent slipped 1.9 percent from last January to $2,750. The decline was 2.8 percent, to $2,702, with concessions factored in. The inventory of available listings in Brooklyn surged 25 percent to 2,459, the firms said.