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The perks that landlords in New York use to lure new tenants may soon be cut back.
Landlords offer perks like gift cards and a month of free rent to attract tenants, especially when a new building needs to be filled.
In Brooklyn, these concessions more than doubled from a year ago to a record high during July. According to a monthly report from Douglas Elliman Real Estate, 22.1% of new leases came with some kind of giveaway.
“The heavy use of concessions has been working where it’s keeping vacancies from rising,” said Jonathan Miller, the CEO of the real-estate appraiser Miller Samuel. But Miller doesn’t expect a significant jump in concessions anytime soon as tenants become more concerned about the cost of their rent excluding discounts.
“We’re getting to the point where tenants are reluctant to sign with heavy concessions because if the concessions are removed, say a year from now on renewal, many will not be able to afford the rent,” Miller told Business Insider. For example, a month of free living may lower a tenant’s average cost of rent, but that value decreases the longer a tenant stays in the apartment.
Should renters begin to ignore concessions, landlords may need to focus on making the base rents more attractive to prospective tenants, Miller said.
Some rents are already falling amid a glut of new housing developments and competition for tenants. In Brooklyn, the net effective median rent, which factors in concessions, fell for a third straight month in July.
Manhattan also got cheaper overall. The median net effective rent in Manhattan fell by 1.9% to $3,410, the first negative year-on-year reading in at least five years and the largest decline in nearly four years.
But the gap between luxury and more moderately priced apartments continued to widen in Manhattan, suggesting that the luxury end of the market kept softening while the more affordable end tightened. The median rent in buildings with doormen fell 0.6% to $3,899 from July 2016, while the cost in buildings without this benefit rose by 2.3% to $2,932.