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Concessions Becoming the New Normal in New York

CoStar Market Insights: When Will These Concessions Burn Off?
June 4, 2018

Concessions were once a rarity in Manhattan. But a surge in new units is changing that.

Facing arguably unlimited apartment demand, Manhattan’s average monthly apartment has risen to $3,840 per unit. More than 12,500 units have delivered in Manhattan since 2015, not to mention the 45,000 units that have opened across the metro. Competition between these newer units is causing rent growth to decline and a bump in concessions to appear across New York City.

One month free is the new normal in New York. Some communities have offered more aggressive incentives to fill their units. For example, the 368-unit Hoyt & Horn apartment tower in Downtown Brooklyn is currently offering four months free on a 25-month lease. The new 525W52 in Hell’s Kitchen opened its first units a year ago and has been leasing about 25 units per month, but is offering two months free on a 14-month lease. When the 709-unit Via 57 West opened in 2016, Durst Organization offered two to three months of free rent and covered broker fees. Some renters of the larger units received four months of free rent, which was previously unheard of in New York. But new projects are relying on these concessions to stabilize.

More interestingly, it is not only new construction that’s offering a free month of rent. Older properties are offering concessions as well. Tenants know they can “concession hop” to get a cheaper net rent. This phenomenon is forcing older, stabilized properties to use incentives in order to lure renters. For example, TriBeCa Pointe, which was built in 1998, is offering two months free in the form of one month free and one month broker fees (OP).

The average concession rate has significantly increased since 2015, which coincides with supply hitting the market. With almost 8,000 units in Manhattan and 60,000 units across the metro under construction, it is unlikely concessions will burn off anytime soon.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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