With record-high rents and extra-tight inventory, fewer Manhattan property owners are dangling incentives to lure renters and brokers to their buildings. But the practice persists in certain neighborhoods where competition to fill rental units is fierce; landlords are paying brokers’ commissions to fill rental units in these cases.
Even as Douglas Elliman data shows overall average monthly rents hitting a five-year high of $3,247 in April, brokers said that owner-paid commissions, or OPs, linger in select locations. OPs, of course, allow owners to advertise their rentals and “no fee” apartments to tenants because they are footing the brokers’ commission fee.
Brokers say despite rising rental rates, the practice, which is generally used when the market is softer, is nevertheless being employed at the newest and biggest rental buildings on the far West Side of Midtown for example.
Buildings such as the Gotham Organization’s Gotham West, Rose Associates’ the Helux, Roseland Properties’ Riverbank West; Silverstein Properties’ River Place and Silver Towers, and Durst Fetner’s the Helena have a combined 4,433 units. More than 2,000 of them, at Gotham West and Silver Towers, hit the market over the past several years, creating a temporary glut.
Landlords east of Second Avenue, in some buildings in the Financial District, and in small pockets through the Upper West Side and the Upper East Side continue to offer incentives which serve as a valuable tool for efficiently filling vacancies, especially in new rental buildings where a large number of units need to be leased up quickly.
While landlords need to offer incentives to fill units in some select buildings and neighborhoods, the trend is largely on the decline.
On the whole, the use of OPs and other incentives dropped to 9 percent of all Manhattan rental deals in April, according to a monthly report from brokerage Citi Habitats. By comparison, in January, the share of general move-in incentives in Manhattan was 13 percent. The numbers are far below those during the recession in 2009, however, when these incentives averaged 52 percent of all Manhattan rental deals.
It all comes down to numbers. If landlords offer an upfront incentive to a tenant, they are able to achieve a higher monthly rental price, since the tenant will need to shell out less money to move into the apartment. But the following year,  landlords can build an increase starting from a higher monthly rental price; in the long term I believe this is a smart strategy for a landlord in any market.