A look at the supply/demand dynamic for Manhattan and Brooklyn rentals suggests that rents are going up.

Despite worries about oversupply and lower demand in the commercial sector, the opposite dynamic appears to be taking place in the residential sector. The year-over-year change in the number of new rental listings is starting to fall as the market heads into the typically busy summer.

While the days of 30% and higher rent increases are likely in the past, with current asking rents already approaching their highs, it will not take a big move to push past those highs into record territory.

For instance, as seen above, the median asking rent in Manhattan is currently only $50 below the record-high, set during the summer of 2022. Even the slightest bit of renter competition will propel rents higher. Looking at the chart below, showing the declining number of new rental listings in Manhattan, it’s clear that things are about to get interesting.

Brooklyn, too, is experiencing many of the same issues, albeit not as acutely as Manhattan. As seen below, the current median asking rent in Brooklyn is $3,600, 5% below the record high set last summer.

However, like Manhattan, the level of new rental listings is dropping off.

Taken together, an uptick in renter demand in Brooklyn could easily power asking rents to new highs.

Indeed, even breaking down the data into neighborhoods shows that all areas in Manhattan and Brooklyn remain under pressure.

Last spring, I wrote about how rents sharply increased on a percentage basis due to the pandemic’s whipsaw effect. At that time, the talk was about the surge in rents, which, when viewed against pre-pandemic measures, were up less than 10%. Now, however, the discussion is not necessarily about the rise in rents, but rather the level of rent. In other words, will rents ever go down again?

Not anytime soon, if the lower amount of supply has anything to say. The following chart looks at how the monthly rental supply for 2023 in Manhattan (blue) and Brooklyn (red) is doing this year compared to the average for each month in previous years (2019-2022). The comparison shows a solidly negative trend that suggests renters today are entering a very landlord-friendly environment. Looking back to the supply/demand dynamics charts earlier, it can be seen that rents tend to fall significantly only after a notable increase in supply. That is certainly not the case today in either Manhattan or Brooklyn.

With tight supply, renters will be forced to compete to sign leases. That means asking rents should be seen more as a guide than a goal. In reality, a perfectly capable apartment for rent in a perfectly normal neighborhood asking $3,500 per month will likely be swarmed with prospective tenants. In this situation, the final rent could approach $4,000 as participants weigh their options for not going higher than the next person.

In short, as the Manhattan and Brooklyn rental markets head into the busy summer, all signs point to higher rents in the months to come. With tomorrow’s rents likely higher than today’s, prospective tenants needing to sign leases in the next few months would do well to analyze their local market and weigh whether paying a premium today to secure an apartment might be worthwhile, rather than potentially paying even more in a couple of months. Alternatively, it might be worth comparison-shopping the sales market over the summer, when it is typically quieter, to see if it might be time to buy.