Increased Demand Is Seen at Lower End of Rental Market

By CANDACE TAYLOR, Staff Reporter of the Sun
April 24, 2008

Matthew Baldwin and Shelly Shapiro immediately liked the Ludlow, a new luxury doorman building on the Lowest East Side, when they toured two-bedroom apartments there this spring.

But the spacious, light-filled unit that they moved into last week has one only bedroom, in part because Mr. Baldwin, who runs a tutoring company, and Ms. Shapiro, who works in finance, both depend on the strength of the economy for their livelihood.

"If a year from now the economy's not doing well, we didn't want to be in a position that wasn't viable," Mr. Baldwin said. "It's something you have to think about."

Mr. Baldwin and Ms. Shapiro's experiences are not unique. As Wall Street reels from thousands of layoffs — including 9,000 that Citigroup announced on Friday — consumer confidence in the economy has plummeted, leading to an unexpected upside for the New York City rental market. Brokers are seeing one-bedrooms and studios, particularly in non-doorman buildings, being snatched up at an accelerated pace, as renters who had been considering more opulent apartments are now choosing to downgrade.

"We're seeing real strength in the lower end of the market," the COO of the brokerage firm the Real Estate Group, Daniel Baum, said. "People don't want to stretch themselves — they're taking a more conservative approach."

In its April report, the Real Estate Group reported a 4.1% increase in average rents in non-doorman, one-bedroom apartments compared to a year ago. Its one-bedroom doorman apartments have fared nearly as well, with rents jumping 4%. In comparison, the rent on two-bedroom doorman apartments increased by less than 1%. The brokerage firm Citi Habitats found similar results, with the average rent for one-bedroom apartments in the first quarter up 3.7% over the same period last year, while rents for two-bedrooms declined by 4.9% and three-bedrooms fell by 7.6 %.

The looming recession was a consideration for freelance writer Karen Schaler when she recently purchased a small pied-à-terre in the West 70s, just half a block from Central Park. She had originally been considering selling her home in Scottsdale, Ariz., and buying a larger apartment here.

"Instead of going big here in Manhattan, I decided to keep my home on the West Coast and downsize on the East," Ms. Schaler said.

The effect isn't a direct result of Wall Street layoffs, since most bankers will receive generous severance packages and likely have accumulated healthy savings in recent years. Instead, the pattern indicates a dip in consumer confidence and the widespread perception that the economy may be in trouble, Mr. Baum said.

"If people believe the financial sectors are hurting, it can have that snowball effect," Mr. Baum said. "They may say, 'Maybe I shouldn't renew this lease. Maybe I should downsize to a one-bedroom.'"

A senior associate at Citi Habitats, Caroline Bass, said she's noticed her clients are "more cautious" in the apartments they're seeking, and less likely to rely on hefty bonuses to help pay the rent.

"I've seen more people say, 'I'm going to stick to an apartment where I know my base salary will cover it,'" she said. "They can still get really nice apartments, but they're not going as wild, as crazy as they would have before. They're being more reasonable."

For Mr. Baldwin and Ms. Shapiro, that meant signing a one-year lease on their new apartment instead of a two-year lease, in addition to downsizing to a one-bedroom. It also meant temporarily shelving the idea of buying an apartment, Mr. Baldwin said, since they believe prices will continue to fall. "If the market was booming, and if we didn't buy now, we'd pay 25% more in a year, that would have been different," he said.