All over the country real estate investors are getting into rental property, and nowhere does this move make more sense than in New York City. Traditionally the home of the extremely expensive, highly exclusive rental property, New York City and Manhattan in particular are staying true to tradition with the lowest apartment vacancy rates in the nation. A miniscule 2.8 percent of all apartments in NYC were vacant in the second quarter of this year, with many potential homeowners reporting that they are opting to rent rather than buy despite low interest rates and a buyers’ market[1].

Rental rates are also booming, with average apartment rents only 1 percent lower than NYC’s market peak in May of 2007[2]. And although some analysts predict that soon the “tenant population [will] speak back,” currently landlords are holding most of the cards and only about 7 percent of new leases come with any type of “sweeteners” like a month’s free rent. This time last year, a full quarter of new leases were accompanied by such incentives.

Gary Malin, president of Citi Habitats, believes that a growing confidence in the economy is positively impacting the rental market even if the ripples have not spread to the housing market. He attributes this confidence with the tenant population’s acceptance of high rents, although he warns that “the pain threshold for tenants” will hit a point where they just “can’t pay it anymore.” He also believes that the debt ceiling crisis and compromise may have sped up the approach of that threshold, saying that “Up until the last few days, people were feeling better about the overall economy.” Now New York, like the rest of the country, will have to wait and see the extent of the debt compromise fallout.

Do you think that NYC will suffer as a result of the debt compromise? Will rents continue to rise?

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[1]http://online.wsj.com/article/SB10001424053111904140604576498141806052626.html?mod=WSJ_NY_RealEstate_LEFTTopStories

[2] http://www.bloomberg.com/news/2011-08-10/manhattan-apartment-rents-climbed-9-in-july-citi-habitats-says.html