It's Now a Renter's Market

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Paul Salamanca, chief executive of SkipBrokers.com, an online no-fee rental company for Manhattan apartments, says tenants are negotiating aggressively. "People are saying: 'If you don't help me out, I know another landlord that's willing to,'" Salamanca says.

But landlords around the country aren't reducing rents just because tenants are shopping around. Americans have seen their finances deteriorate amid the ongoing layoffs and pay cuts. Some landlords have dropped rents on a temporary basis to allow tenants time to find a new job.

For People Who Lose Their Jobs

About three weeks ago, Cleveland's Goldberg Cos., which owns 9,000 units in Ohio, North Carolina, Florida, and Texas, started offering "layoff-proof" leases, which guarantee tenants up to two months of free rent if they provide proof they were laid off. If the tenant is unable to find another job after the two months, they can break the lease with no penalty.

The company hopes to attract tenants who are living with parents or sharing apartments with multiple tenants.

"What's keeping people from renting is fear," says Eric Bell, a senior vice-president at Goldberg. "We wanted to give people a cushion or a safety net, so they know they'll have some time to get back on their feet."

Anger Among Other Tenants?

But not all landlords are giving renters financial incentives. Mary Gwyn, chief innovator for Apartment Dynamics, a property management training and consulting firm that also manages apartment communities in North Carolina, says she recommends against that strategy. She says allowing new tenants to live for free for a month or two damages profits and could create tension with existing tenants who aren't getting the same deal.

Landlords can prevent turnover by creating a better sense of community in the development, she says. They might cook Thanksgiving dinner for residents who don't have family nearby, send out cards to residents who are celebrating birthdays or who have suffered a death in the family, and organize pizza parties and useful workshops on résumé writing and job searches, she explains.

"People want to live in a neighborhood where they feel that someone knows their name and cares about their circumstances," Gwyn says.

But Robert Scaglion, senior managing director of Rose Associates, one of New York City's largest development, property management, and marketing firms, says tenants in this job climate are sensitive to rental rates. He said the company, which manages Chelsea Landmark, where Gips lives, has increased its occupancy level to 98% by making swift changes to rents to reflect the market.

Where Renters Are Going

The pool of Manhattan renters has shrunk because people are doubling and tripling up, moving in with parents, or leaving the city for less-expensive digs or for new jobs elsewhere. Many parents who were subsidizing their twentysomething child's apartment can no longer afford to do so. At the same time, renters from Brooklyn, Queens, and northern New Jersey, who never thought they could afford Manhattan, are coming in to take advantage of newly reduced rents, Scaglion says.

"Normally, when the sales market starts to soften or go down, it's very good for the rental market," Scaglion said. "This time the for-sale and rental markets have gone down simultaneously."

The good news for landlords is that fewer people are moving out of apartments to buy condos or single-family homes, since those markets have also slowed in the Northeast.

Trading Up

Sofia Kim, vice-president for research at Steeteasy.com, a popular New York real estate listings site, says Manhattan rents are falling fast. Renewing tenants aren't asking just for reductions; they're asking to be moved to larger apartments for the same rents, she says.

StreetEasy.com says the median effective rent for one-bedroom apartments in Manhattan fell nearly 10% in the first quarter, compared with the same period last year. The rent for two-bedroom apartments dropped 15% in the Upper East Side and 28% in the hard-hit financial district, the company says.

Gips expects New York rents to drop more. But she doesn't want them to fall too far. "I hope next year there isn't another big [rent] reduction," Gips says. "That would mean the economy is in an awful place."

Click here to see the biggest cities with the most affordable rents.

Gopal writes about real estate for BusinessWeek in New York.