Lower Prices, Buyer Buzz Bolster Hopes For Condo Market In Brooklyn, Queens
As New York City real estate staggers from the economic fallout of the ongoing global pandemic, proponents of residential development in the outer boroughs — long the understudy for glitzy Manhattan condominiums — are banking on a swifter recovery.
Lower price points, plunging interest rates and buyer aversion to density, as well as a thinning pipeline of units coming to market are all buoying hopes that the residential market in Brooklyn and Queens will weather this storm.
“In the rental market, there is nothing to be super-positive about right now. We are in the middle of an awful supply-demand issue, and it’s difficult to be upbeat about that,” MNS CEO Andrew Barrocas said.
The sales market is a different story. First-time homebuyers looking for homes under $2M are active members of the market right now, and areas outside Manhattan are positioned to meet that demand, Barrocas said.
“We are getting a lot of buyers from Manhattan … and we think things are going as good, if not better, than anywhere else in the real estate market — both commercial and residential," he said.
Those with condos to sell may take comfort in the supply on the horizon. From 2010 until the end of 2020, some 18,723 condo units will have been delivered in Brooklyn alone, according to data provided to Bisnow by Nancy Packes Data Services. Over the next few years, that number is set to diminish significantly. Fewer than 6,000 condos are set to deliver before 2023, and it is possible some of those will be converted into rentals.
Queens tells a similar story. Some 10,000 condominium units are expected to have been delivered over the last decade by the time we reach the end of this year. The total new development condo pipeline is under 4,500 over 2021, 2022 and 2023.
“Some of these buildings will not go condo at all,” Nancy Packes said in an interview, adding she has received calls from marketing firms talking about turning buildings that were set to be condo into rentals, though she declined to give specifics.
That “rental escape” strategy is not an option for Manhattan, she said, because the units are too big and pricey.
“[The boroughs] are in a much better place. Prices are lower, units are smaller. The customer is used to the idea that Brooklyn will keep gaining value,” she said. “And while the buildings are smaller, it is actually less dense. People have shied away from density.”
Across the board, the sales market in the boroughs has held up better through the coronavirus pandemic than Manhattan. Sales numbers across the city have gone down through the crisis, but Miller Samuel CEO Jonathan Miller told Bisnow contract activity in Brooklyn and Queens actually increased in the third quarter of the year, while Manhattan decreased.
He noted that much of the city's development boom after the last recession in Brooklyn and Queens was focused on luxury rentals, rather than condos. Now, he expects Brooklyn and Queens to experience the same kind of bump in the activity that has been seen in the suburbs and Long Island.
That could mean buyer demand will begin to outstrip supply in the boroughs, though he stresses the future of the market is contingent upon how quickly the pandemic ends or is brought under control.
“When we began the lockdown, there was a panic about outbound migration. It was characterized as urban to suburban — but it was really Manhattan to suburbs and Manhattan to places like Brooklyn,” Miller said. “Manhattan is characterized by wealth and mobility, whereas Brooklyn is still seeing [buying] activity to similar levels to a year ago.”
It may simply come down to price.
New Empire Real Estate Group CEO Bentley Zhao, whose firm is selling Six Garfield, a new ground-up, 33-unit condo in Park Slope, said condos priced under $1M are selling at a steady pace. In Manhattan, where the company’s projects include a condo development at 208 Delancey St. on the Lower East Side, asking prices are generally down around 10% in the $2M price range.
“Anything above $2M is not moving quickly,” he said, adding that the most prevalent buyers are in the 30-to-45 age group, and are often people with young families.
Manhattan, where the median home price was $1.1M in the third quarter, per Miller Samuel figures, has long been dominated by the high-end buyer. Brooklyn’s median residential price was $799K last quarter, while Queens was $599K, data shows.
The upper echelon of the market was already oversupplied well before the pandemic, with luxury buyers skittish about the election and a host of policies like the one-time tax on second homes introduced last year and the possibility of a pied-à-terre tax said to be putting them off.
The pandemic is just another reason for those kinds of buyers to wait, Halstead Property Development Marketing President Stephen Kliegerman said.
“That high-end buyer is waiting a bit longer to see if the market softens a bit more before jumping in,” he said.
His firm is marketing multiple new development condo projects across the city, including The Brooklyn Grove at 10 Nevins St. in Brooklyn and The Rowan in Astoria, Queens.
For first-time buyers, there is still a sense of urgency in order to make the most of a buyer's market with historically low interest rates. Citywide, he said there is still activity and the condo projects in the city that are in real financial trouble were already facing problems well before this pandemic.
“The rest of them are facing lower returns than were expected, but they are well-capitalized and they have some room to move,” he said. “Things are moving. I know the perception is that nothing is selling. But there are deals being made and there are lots of buyers out there. It's just a matter of sellers being a little more realistic and a little more reasonable in order to engage and get those buyers to step up. It's not dire, it’s just a moment in time.”
RockFarmer Properties Managing Principal John Petras said increased interest in Brooklyn and Queens is just an acceleration of a trend that was well underway before the pandemic. His company is developing The Rowan in Astoria, where a penthouse sold for $1.7M in September.
It is also marketing Astoria Lights, a co-op development on 38th Street. Sales velocity isn't where it would have been had the coronavirus not broken out, he said, but the company was actually able to increase prices at The Rowan on a third of the units because of demand over the summer.
Buyers were already seeking more suburban feeling within the city, he said, and that has just increased through the pandemic. Plus, Manhattan doesn't have the same allure it once had right now.
“Manhattan is getting [the] brunt of all the bad publicity, whether it is stores boarded up, homelessness and protests — the boroughs are not getting all that,” he said. “We are on hold right now on considering development in Manhattan. But having said that, I am not one of those that is bearish on Manhattan long-term. Manhattan will reinvent itself, and in some ways it will be a lot better.”