The New York City real estate market is returning to its prepandemic normal, but anyone looking for a rental apartment should prepare for a possible post-pandemic surprise. Bidding wars — long the scourge of prospective home buyers — are now being waged for rentals, especially in the hippest neighborhoods that are within walking distance of newly reopening office buildings.
“What we’re now seeing is that certain neighborhoods — particularly those below 34th street on the West Side — are now coveted and in demand for rentals,” says Hal Gavzie, executive director of leasing at Douglas Elliman. “We’ve seen rental bidding wars, with multiple applications and inquiries leading to bids that are $100 to $750 above listing price,” he added.
Median rental prices dropped during the pandemic when a lot of renters left the city, and could take months to fully recover.
Mr. Gavzie said that this feels like a different market from past years because while corporations are slowly coming back, there is still a lot of inventory in neighborhoods like Midtown East and areas like Hell’s Kitchen. But he notes the rental prices in these neighborhoods will take a little longer to reach pre-Covid levels because “they’re not fully back yet,” but Lower Manhattan has started to see prices bouncing back to prepandemic levels.
A lot of the frenzy has been caused by residents who fled the city before the pandemic, but are now beginning to leave their work-from-home lives behind, and want the best-possible situation when they get back to the city.
“The reason we are experiencing bidding wars is that young people want to be downtown and many of the areas where they’re being called back to work are in the financial district,” said Cathy Taub, an associate broker at Sotheby’s International. “That has spurred the hunt for rentals close to office spaces. We have been more location agnostic in the rental market until now, and now we’re back to location, location, location.”
Many of these workers are willing to pay hundreds of dollars more per month to get something in the neighborhoods that are most in demand, which in addition to the financial district, include Greenwich Village, the Upper West Side and parts of Brooklyn.
Jay Glazer, an associate broker at the Corcoran Group, listed two one-bedroom units in a five-story building on Horatio Street in the West Village in July at $4,150 per month. The one on the third floor with treetop views and high ceilings was bid up to $4,400, and the other ground-floor unit with three French doors opening into a 615-square-foot wraparound private garden, complete with Japanese maple and climbing ivy, was bid up to $5,000.
“We had a lot of people reach out to say that their offices were reopening, but given the speed of the recovery, the office openings were expedited,” Mr. Glazer said. “They were obligated to be in, and if someone started their search in May, two months is not enough time to buy a place — so there’s an urgency.”
Recently, a one-bedroom rental on Jane Street in the West Village, on the third floor of a five-floor elevator building, that was listed at $4,850 a month was quickly bid up and rented for $5,200, said Michael Miarecki, the agent at Sotheby’s who handled the property.
In addition to its location, he said the apartment was particularly attractive because of a recent renovation that included new floors and a floor-to-ceiling glass door that separates the living area and the bedroom.
Rachel Bernstein, who owned the Jane Street apartment, which she bought in 2015, said she received inquiries from 60 potential renters but never expected it to move as quickly as it did or to get bids above the asking price. “I was surprised that people were coming in over the $5k threshold,” she said.
Ms. Bernstein said she briefly considered selling the apartment but didn’t want to let it go quite yet. She has moved into another rental in the West Village where she said she has upgraded her work-from-home environment.
Rental bidding wars are cropping up outside of New York as well, in places like New Jersey and beyond.
Santosh Gunaseelen, 38, a vice president at a software company, relocated to Seattle from New York City during the pandemic but decided to move back to the East Coast in July.
He chose not to buy a home because of the craziness of the sales market. But the search for an ideal rental for his family proved equally tough.
He found a three-story house in a quiet neighborhood in Summit City in New Jersey. “I didn’t even look at it, but I think we went in $250 more for a lease that was priced at $5,000 per month, but I lost it because other folks came in with nearly $6,000 per month for a two-year lease. He eventually won another bidding war but ended up renting a four-bedroom house in Millburn Township at the asking price of $5,300 per month.
With the market becoming more competitive, Joseph Hamdan, principal broker at Coldwell Banker Reliable in Brooklyn, said that the incentives offered for rentals have all but disappeared. “Some companies used to contribute to moving costs, other management companies offered a month or two of free rent, and these have been greatly reduced,” he said. “A lot of the concessions started to be eliminated during the Memorial Day holiday weekend.”
Craig Hatkoff, co-founder of the TriBeCa Film Festival and a real estate investor who has been in the business for more than 40 years, says that the market — especially in New York — is still adjusting to what it means in terms of office workers going back into work. “We’ve moved into a post Covid phase; by September we may well be north of 70 percent in occupancy levels,” he said.
The rental market isn’t so much a speculative one as it is a psychological one, he added, because people are not exactly sure what’s going to transpire and are trying to hedge their bets. “It’s about rental parity analysis: if you looked at an apartment that costs $3,000 a month, you do a back of the envelope calculation on how much it would cost to buy versus rent, and even with higher bids, rentals can be cheaper because there’s an optionality to get out,” he added, saying that new coronavirus variants have also created an embedded uncertainty in the market.
But since the owners of many properties are the ultimate decision makers, not all of the higher bids end up being the winning ones.
Richard Rojas, a broker at Compass, listed a one-bedroom rental in June that was located on the top floor of a prewar walk-up at Carroll Gardens, Brooklyn, for $3,300 a month. “As soon as the listing launched, I knew that it was going to go fast because my inbox got flooded with inquiries,” he said. “In that neighborhood, there are a lot of townhouses as well as condo units, so when there’s a one-bedroom with a den that becomes available, it’s a hit.”
Mr. Rojas held two bustling open houses at the apartment. “Everyone asked for an application, and I had offers from some that were sight unseen,” including one at $3,600 from an applicant from California. But in the end, despite the higher bids, the owners, who also live in the townhouse, decided to go with a well-prepared applicant who bid the asking price but was willing to pay the broker’s fee, which was one month’s rent.
“The owners cared about the character and integrity of the tenant since they shared the premises,” Mr. Rojas said.
For weekly email updates on residential real estate news, sign up here. Follow us on Twitter: @nytrealestate.