As rental prices in Manhattan continue to drop, landlords are offering free months of rent to fill a record-high number of empty apartments.

The borough’s vacancy rate continued to climb above the 5% barrier it broke in August, rising to 5.75% in September, according to a report from real estate firm Douglas Elliman and appraiser Miller Samuel.

It was the highest level in the report’s 14-year history, during which Manhattan’s vacancy rate has typically fluctuated between 1.5% and 2.5%.

While the average incentive offered by landlords in September was two months of free rent, some offered leases that were rent free until 2021. During the month, more than half of all Manhattan apartments were leased with a concession, and the median rent was $3,250, down 7% from a year ago.

“Rents are falling, concessions are at record levels and vacancy is still rising,” said Jonathan Miller, president of Miller Samuel.

Still, he said, he sees signs that the rental market in the city may be moving into a new phase.

Inventory at record high, but slowing

A massive number of rental apartments are on the market right now, with listing inventory more than tripling the levels of a year ago, according to the report. In September there were 15,923 available apartments.

But the monthly rate of growth of available listings has slowed, Miller said.

Between April and May, inventory spiked 57%. But the increases slowed over the summer, with supply rising by 6% from August to September.

“It suggests that this rocket ship phenomenon, from the lockdown and immediately afterward of high inventory levels, has played out and we’re going into another phase,” said Miller.

But until more people return to the city, inventory will stay at record highs, and rent prices will continue to drop, said Nancy Wu, an economist for StreetEasy, a real estate listing service.

“Renters can expect concessions to continue to increase, and should feel empowered to negotiate for deals for at least as long as the pandemic lasts and until employment, the population, and the economy recover.”

Landlords are constantly evaluating their pricing, said Eugene Litvak, a real estate agent with Compass, whose team handles 3,000 rental units in Manhattan and Brooklyn.

“Some months have been good when people don’t leave,” he said. “Some months have been bad, when out of 20 renewals you send out, 18 [tenants] are leaving, and you’re like, ‘Oh man!’ “

How to find a deal now

Prospective renters can benefit from the balancing act that landlords are going through right now in trying to fill their vacant apartments, said Litvak.

“Get in touch with the listing agent directly,” he suggested. “What you see listed online isn’t always the only thing available and it may not be the final pricing model, when you see one month or two months free.”

Brokers with many listings available in a building will not typically put all of them on the market at once, he said. If you are interested in a building but the apartment listed isn’t a home-run, talk with the agent, Litvak said. Chances are they have others to offer.

Move-in dates really matter, said Litvak, and can be a tool prospective tenants can use to their favor. Leases tend to start at the beginning of the month, but an earlier move-in date could be appealing to a landlord.

“I’ve seen some people find a middle ground and say, ‘I’ll take it three days from now, if you give me an extra 10 days free,’ ” he said.

While there are differences between what landlords who own stabilized and non-stabilized buildings can do, generally landlords are resistant to reducing rent because it ultimately may reduce the amount of rent they can ask going forward and drive down the value of the building, said Litvak. This is why concessions, or free months rent, are commonly used, he said.

However in some non-stabilized buildings, landlords are accepting the monthly rent payments with the free months’ rent factored in, said Litvak, which amounts to a lower rent payment every month.

“You don’t get free rent, but rather you get the amortized net effective rent for the lease,” Litvak said. “We encourage that. Instead of fighting the market, we’re encouraging landlords to be flexible and allow people who are cash flow driven to have that option.”