The COVID-era NYC Rental Market

via Unsplash*

As I mentioned briefly back in May, we signed our most recent lease renewal then, in the earliest months of the pandemic. K and I live in a rental-only apartment building in Manhattan - somewhere south of 59th Street, in a distinctly un-hip neighborhood, and a bit far from the subway - run by a large, corporate landlord. They initially sent us a lease renewal offer in early March, before the US started shutting down due to COVID-19. That initial offer was for a ~6% rent increase over our previous lease renewal in 2019. 

At the time our landlord extended their initial offer, the proposed rent of ~6% more than the previous year was perfectly in line with market rates for new leases on comparable units in our neighborhood. (One can search online and get a fairly accurate and up-to-date sense of the NYC rental market using StreetEasy.) But because we live in a building marketed as a "luxury apartment" building, there were tons of cheaper, similarly-sized apartments in less fancy buildings nearby. We also have that somewhat rare for NYC luxury of in-unit laundry, which, in normal times, adds maybe ~$100 to $150/month in rent over comparable apartments without that feature. In other words, we were starting to feel like our apartment was too overpriced, particularly because we were also thinking one or both of us might lave biglaw - or, in my case, biglaw-ish - private practice sometime in the next year, likely resulting in a significant pay cut. 

Then came March 12 and my abrupt return from my business trip, which also felt like the first day a critical mass of people in NYC realized COVID-19 was already a serious problem here. Barely a week later, the state government would order a full shutdown of all non-essential businesses. 

K and I didn't really have the mental energy to think about our lease renewal until early May. By then, the number of COVID-19 cases here was still high, and the first phase of NYC's reopening would not begin for another month. We were in agreement that we felt safer paying slightly inflated rent - we each held robust cash "emergency funds" of well over six months' living expenses at the time and could reluctantly weather overpriced rent costs, even if COVID ended up bringing salary cuts or layoffs down the line - than trying to move in the middle of the pandemic. Furthermore, the pandemic had scuppered our plans to leave private sector legal practice in the next year, we were no longer looking to switch jobs for a possible pay cut.  

After two months of shutdowns, the NYC rental market was already starting to turn, at least in our neighborhood. Whereas that ~6% increase over our 2019 rent was in line with market rates for new leases for comparable apartments in early March, rents had fallen slightly by early May, to maybe ~$100 to $150/month less for new tenants compared to our 2019 rent, after factoring in the standard one or two months' free rent concessions. 

A bit of context here: Most "luxury apartment" buildings, at least in Manhattan, seem to advertise "effective rents" for new tenants that factor in one to two months' free rent concessions, so the actual "base rent" on  paper is much higher. I've never looked into why they do that, if it might have a tax or accounting benefit for the landlord, or maybe they just hope to stick tenants with future rent increases on top of that "base rent." (Our landlord has always been relatively fair in its dealings with us, our pre-2020 lease renewals always resulted in us paying about the same as new tenants receiving that rent concession, with no extra negotiation on our part.)

Because our large, corporate landlord required us to log in to a separate website to access the details of our lease renewal offer - something we never felt like doing between March and early May - we didn't realize until May that they had quietly changed the terms of our offer to reflect the new post-COVID shutdown market rates, at least to an extent. They'd taken away that ~6% rent increase and were now offering to renew us at the same rent we were paying since our last lease renewal in 2019. 

I guess here we see one reason why offering "free month" rent concessions rather than lowering base rent might work out better for the landlord: K and I agreed we were happy to accept the offer to renew our lease at the 2019 rent, rather than pushing for the ~$100 to $150/month less "effective rent" new tenants were getting with concessions. In the moment, we didn't see it as a clear case warranting negotiation if new tenants' base rent without the concession was still more than what we were offered. (I confess, we're not always the most aggressive negotiators when it comes to personal business like this. We've also never had practice negotiating with a landlord because previous offers were always in line with what new tenants in our building were getting!) In hindsight, we should definitely have tried asking for the slightly lowered rent new tenants were getting, as the landlord had always offered that to us in the past.

And that's far from where the story ends when it comes to COVID-driven changes in the NYC rental market, at least in Manhattan and for buildings and corporate landlords competing in the "luxury apartment" space. Rents for new tenants in these types of buildings have continued to crash downwards. By October, the new tenant rents for units like ours in our neighborhood had dropped by as much as ~$700 to $800/month compared to our 2019 rent, and they might still be dropping further. (The resulting rents are almost what we paid when we first moved to this neighborhood in 2015.) I randomly came across a more prominent blogger trying to sublet their one-bedroom "luxury apartment" near Hudson Yards - a neighborhood that likely has a more oversaturated market for units in newer "luxury apartment" buildings with nicer amenities than mine - and they were ultimately forced to offer  a ~$1000/month cut on the rent they were stuck with after renewing early in the pandemic like we did. 

We're not kicking ourselves too, too hard about out failure to negotiate when we renewed the lease back in May. At that time, the best deal we could have gotten was probably ~$150/month less than what we're paying now, certainly not the full ~$700 to $800 less that new tenants were getting in October and right now. I suppose we can't help but hope that the crash in the local rental market persists until our next lease renewal period in May 2021, though, so that we can also benefit. 

* This stock photograph has the right general look to be one of those "luxury apartments" I mean when I discuss this segment of the NYC rental market. We even have similar countertops and appliances - but no fancy-looking backsplashes - in our building! Except that this kitchen is more than, maybe even significantly more than, twice as big as a standard-ish sized kitchen for a smaller, basic one-bedroom unit like ours, and accordingly, our fridge is also smaller. 

I refer to these units as "luxury apartments" because that's how our corporate landlords market them. I don't personally think it's that aspirational to live in these type of apartments. In fact, I regularly find myself cringing at how we really are overpaying relative to what else is out there in the neighborhood. For the basic, smallest type in the building, and on a lower floor type of one-bedroom unit K and I live in, there' nothing particularly "luxurious" about it, except that our appliances, countertops, and cabinets look a little trendier than average. (Our cabinets, in particular, are actually very cheap quality.) The in-unit laundry is, admittedly, something I'm really attached to, but we pay an extra premium for that over the price of other "luxury" units without that feature. The reasons we originally ended up in this segment of the local rental market were mainly that: (1) these "luxury" buildings tend to be entirely "no-fee", and without the 12% to 15% of a year's rent broker fees standard with many other new NYC apartment leases, these units feel less overpriced during one's first lease term and (2) the application process for new tenants tends to be less fussy and time-consuming than with many other buildings.