Posted by Jonathan J. Miller -Monday, April 16, 2012, 6:00 AM
[click to expand]
One of the big issues in following the rental market over the past couple of years has been the disparity between the rental rate of the lease and the actual rent paid by the tenant. Here’s the difference:
Face Rent the formal or gross rent amount on the lease before any concessions offered by the landlord (i.e. free rent, paid commissions, etc.)
Net Effective Rent the face rent less the concessions offered by the landlord (i.e. free rent, paid commissions, etc.)
In periods with high rates of landlord concessions, the face rent trends much higher than what tenants are actually paying (net effective rent). This was clearly the case in 2009 and 2010.
The disparity really bothered me so I figured out a way to track this information and Douglas Elliman’s rental division helped me capture it on a very large sample size of the market. To date we’re the only source of this metric, but to the consumer’s benefit, it now doesn’t matter a whole lot anymore (sigh).
Back in 2009, 2010, landlords were routinely paying concessions of 2-3 months of free rent in 2/3 of all leases. Now it’s about 1 month of free rent in about 1 out of 10 leases. In other words, it’s a nominal phenomenon (good name for a rock band). The chart above shows that the two trends have come together.
But when the rental market weakens (in a few years when credit eases), the lines will begin to diverge again and we’ll still be tracking it.
- [Tight Credit] 1Q 2012 Manhattan Rental Report [Miller Samuel]
- Manhattan Rental Market Charts [Miller Samuel]