For the first spring in many years, it’s relatively nice to be a renter. The New York City rental market is seven months into its first slowdown since emerging from the financial crisis, bringing welcome relief to apartment hunters in the country’s most expensive city. But falling rents are not the only sign of relief this spring brings to renters; since the rental market began slowing last September, rent concessions have risen substantially.
Citywide, the share of rental listings on StreetEasy with concessions rose to roughly 14 percent of listings in October[i]. This follows a seasonal trend of listing concessions spiking in the fall after the conclusion of busy summer rental season. However, the elevated level reached over the past winter is roughly 5 percentage points higher than the previous high reached in January of 2016. Overall, our data shows that the share of concessions has grown substantially over the past five years, rising from an annual total of 2.7 percent of listings in 2011 to 10.4 percent of listings in 2016.
Cuts to the legal rent – the rent a tenant writes a check for each month – tend to be a last resort for most landlords, who often prefer to offer prospective tenants a period of free rent or other incentives. Keeping the monthly rent level high conditions renters to pay higher rates over time, and tends to increase the negotiating power a landlord has when a lease comes up for renewal. Rent concessions can also limit resentments of existing tenants, who may have locked in leases at higher rates and would be inclined to negotiate lower renewals to match lower advertised prices.
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At StreetEasy, we track advertised concessions – those that landlords or listing agents include in the apartment’s listing description on StreetEasy. The overwhelming majority of concessions take the form of some sort of temporary reduction in or elimination of a portion of rent (a certain number of months, or other specified amount of time with free rent), but can also include other types of cash or cash equivalent incentives (such as gift cards or Uber credits), and modifications to security deposit requirements.
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On a neighborhood level among those with at least 100 listings for rent in April 2017, rent concessions were most prevalent in Downtown Brooklyn, where 58 percent of all listings feature an incentive for new tenants. The high level of concessions in the neighborhood is mainly driven by the wave of new buildings that have hit the market over the past month, including 333 Schermerhorn St, 10 City Point, and 180 Myrtle Ave, all of which are offering deals to prospective tenants.
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The Financial District and Battery Park City, both areas with prominent new rental construction, also rank among the neighborhoods with the highest concentration of concessions. Looking at buildings constructed since 2000 (according to data from the NYC Department of Finance), we see new building as a strong driver of the trend toward more prevalent concessions.
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While rent growth continues to slow – and rents even decline in some neighborhoods – and the prevalence of concessions increases, landlords have begun to get more creative with the incentives included in the leasing packages. Gift cards, Amazon Prime memberships, Uber credit, Netflix subscriptions, and even HD TVs are all among the creative enticements landlords are offering prospective tenants in order fill empty units. While landlords have traditionally been willing to throw in free storage space and fitness memberships for new tenants, this expanding set of cash-like incentives is a new trend that has only emerged since roughly the beginning of 2016. They require a relatively limited investment in comparison to even a single month off from rent from owners, who hope to seal the deal with younger consumers not yet concerned with concerns over where to fit holiday decorations in the off season.
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Concessions can be great, especially for those whose dream apartments have gross rents that fit comfortably within their budget. Moreover, concessions are particularly nice for those only seeking an apartment for a year or two, making their net rent more reflective of their financial reality. But oftentimes landlords gear these enticements toward shifting the psychology of potential renters to carve out more of their monthly budget for rent than they would otherwise. For those looking at apartments with special incentives, it especially important to consider in advance how they affect the financial calculus of renting. A free year of Netflix – worth about $150 – is great for those who would rent an apartment anyway, but should not be a financial factor when considering an annual lease for several thousand dollars.
Lease concessions tend to fall in the summer, so we expect the share of listings offering deals to dip as we enter the busy season for renters. However, we expect rent growth to continue slowing through the summer, so while the overall share of deals may fall, we expect the absolute number of units with concessions to remain high. For those looking for a unit in a new building, it’s always a great idea to ask agents and property managers if there is anything they can do to sweeten the deal.
We developed an algorithm to search listing descriptions from StreetEasy’s comprehensive database for keyword phrases and patterns indicating that the unit owner was offering a concession. We calibrated our algorithm on a random sample of several thousand listings from 2011 to the present and manually adjusted it to capture the full universe of possible concessions offered, as defined in the text above. Because our analysis only covers advertised concessions and we do not consider owners’ payment of a broker’s fee as a concession for the purposes of this analysis, our calculations of the share of listings with concessions may differ from than those featured elsewhere.
[1] Calculations based on rental listings on StreetEasy. Does not include broker fees paid by owners or property management firms and concessions that might be made known to brokers but are not advertised to the public through a listing description on StreetEasy.