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Yves here. New York City not all that long ago showed year-to-year declines in rental prices (as opposed to soft price cuts via landlord concessions) due to an apartment building boom putting a lot of new units on the market. But the Covid-19 rent reductions are another matter entirely.

Even though the outlook for New York City is particularly grim due to the loss of revenues from commuters and tourists, the idea that the “work at home” new normal will survive Covid-19 is overstated. A recent Wall Street Journal compilation of interview finding with major company CEOs found that overwhelmingly they viewed remote working a negative for their business. They saw the loss of informal interaction as a major cost, and most also believed productivity was lower. So expect to see an eventual return to offices. But will those offices be in the same major urban centers?

By Wolf Richter, editor at Wolf Street. Originally published at Wolf Street

The combination of work-from-anywhere, ridiculously expensive rents, and coronavirus-fears associated with being on crowded elevators in apartment towers, is doing a job on the rental market in San Francisco. And not just in San Francisco, but also in New York, Seattle, Boston, San Jose, Los Angeles, Washington DC, Denver, and other expensive big-city rental markets. But it’s hitting San Francisco, the most expensive rental market, the hardest.

In some other markets, rents are skyrocketing. So here we go with our roller-coaster ride through the cities.

San Francisco rents in free-fall but still ridiculously crazy expensive.

The median asking rent for one-bedroom apartments in San Francisco plunged by 6.9% in September from August, after having plunged by 5.0% in August from July, to $2,830. This brings the five-month decline since April to 19%, and the 12-month decline to 20%, according to data from Zumper’s Rent Report. From the peak in June 2019 – which had eked past by a hair the prior high of October 2015 – the median asking rent for 1-BR apartments has plunged 24%!

For 2-BR apartments in San Francisco, the median asking rent plunged by 6.6% in September from August, after having plunged by 3.3% in August from July, to $3,800, bringing the five-month decline since April to 16% and the 12-month decline to 20%. And 24% from the peak in October 2015.

To convert this plunge from percentages into fiat, so to speak, the median asking rent for a 2-BR apartment has plunged by $950 from September a year ago, and by $1,200 from the peak in October 2015. This is no longer a rounding error.

These median asking rents do not include concessions, such as “one month free” or “two months free” or “free parking for a year” and the like. These concessions have the effect of drastically lowering the rent further. “Two-months free” lowers the rent over the 14-month period by 16%. Concessions, instead of rent cuts, allow landlords to show the monthly rents, as they’re spelled out in the lease, without the concessions, to their now very nervous banks.

Despite this huge drop in rents, in terms of cities, San Francisco remains the most ridiculously crazy-expensive rental market in the US. But in terms of zip codes, there are a handful of zip codes in Manhattan and in Los Angeles that are more expensive than the most expensive zip code in San Francisco.

“Free upgrades” is what the people who have decided to stay in San Francisco are now looking for. This is the strategy of shopping around among the soaring vacancies for an apartment with the same rent or even lower rent, but of much higher quality and in a better location. It creates churn. Landlords that lost a tenant to a “free upgrade” now have to price their vacant unit competitively, meaning undercutting other offers. This churn and the high vacancies explain the rapid reaction of the market to the current situation. The City of Boom and Bust always. And now is the bust.

After New York City re-opened, rents plunged.

Similar to San Francisco, New York City is losing part of its work-from-anywhere crowd that would rather work from a nicer bigger cheaper place further away, or even from a house they’d just bought in the suburbs, leading to surging vacancies, aggressive pricing, and lots of concessions.

The median asking rent for 1-BR apartments dropped 3.7% in September from August, to $2,830, after having dropped 4.9% in August from July, and is down 12.5% year-over-year.

For 2-BR apartments, the median asking rent dropped 1.6% in the month, after having plunged 5.0% in the prior month, and is down 11.3% year-over-year. In New York, peak-asking-rent occurred in March 2016, and asking rents have since plunged 23% for 1-BR apartments and 25% for 2-BR apartments.

Landlords are aggressively offering concessions in New York City, and tenants are aggressively shopping for “free upgrades.” Things are moving and churning.

The 17 most expensive rental markets.

The table below shows the 17 most expensive major rental markets by median asking rents, based on Zumper’s data. The more expensive, the bigger the drops. The table shows September rent and the year-over-year percentage. In the shaded area, it shows peak rent and change from peak. Interestingly, Chicago and Honolulu, whose rental markets have gotten crushed over the past few years, appear to have hit bottom:

What’s “median asking rent?”

“Median” means half of the asking rents are higher, and half are lower. “Asking rent” is the advertised rent, a measure of the current market, like a price tag in a store. Asking rent does not measure what tenants are currently paying in rent, such as under rent control. Asking rents do not include concessions.

Zumper collects this data from the Multiple Listings Service (MLS) and other listings in the 100 largest markets, but only for apartment buildings, including new construction. They do not include single-family houses and condos-for-rent.

The 10 cities with the lowest 1-BR rents of the Top 100:

You can work from anywhere and want to save on rent? OK, this list is for you. The cheapest city to rent in among the largest 100 rental markets is Akron, OH. Wichita and Tulsa are second and third cheapest; in all three cities, rents declined. But the list also includes some cities with large rent increases:

The 35 Cities with year-over-year declines in 1-BR rents.

Of the 100 cities, 35 had year-over-year declines in median asking rents for 1-BR apartments. San Francisco leads with a 20% plunge, followed by college town Syracuse, NY, with a 14.4% drop. In addition to the outrageously expensive rental markets discussed above, the list also contains six cities in Texas, and cities across the US, but with moderate declines, such as Tulsa and Wichita, that have not participated in the craziness of other rental markets:

The 34 Cities with 5%-plus year-over-year increases in 1-BR rents.

Rents in September increased on a year-over-year basis in 62 of the 100 rental markets, compared to 35 cities with rent declines. In 34 of those cities, rents increased by over 5%. And in 16 of those cities, rents increased on a year-over-year basis in the double-digits. And in 10 of these cities, rents soared by 15% or more (I threw 14.9%-ers into that basket). The most expensive cities with a double-digit rent increase – Newark ($1,420) and Baltimore ($1,340) – are less than half as expensive as much-reduced-but-still-ridiculously-expensive San Francisco.

For five months, we have seen this move now, and it has been sustained so far, of renters getting out of the most expensive cities, and fewer students are moving back to college towns, and the oil patch is struggling with a double-whammy. Some renters head to cheaper rental markets, others bought a home outside the city center somewhere, and others moved back with mom and dad, leaving behind a vacuum. And landlords who want to fill their vacancies respond quickly to market conditions, by dropping their asking rents.

But the corollary is that this move and likely other factors have sent rents surging in numerous other markets.

The Largest 100 rental markets.

The table below shows the top 100 cities, 1-BR and 2-BR median asking rents in September, and year-over-year changes, in order of 1-BR rents, from most expensive to least expensive. You can search the list via the search function in your browser (if your smartphone clips this 6-column table on the right, hold your device in landscape position):