Manhattan Empties, Brooklyn Hangs on as Renters Prioritize Space, Amenities Over Commute in Pandemic Economy
The residential vacancy rate in Manhattan has grown to an unprecedented 6%. But Brooklyn real estate has held fairly steady, proving the most resilient borough, new figures show.
When the pandemic shut down New York City, new leasing at the residential buildings owned by Brooklyn-based Two Trees Management dropped dramatically.
When New Yorkers began to emerge from their apartments, nervous prospects initially did virtual tours, and then started coming for in-person visits when Two Trees reopened its offices in July. As would-be tenants gained confidence, they started to sign leases.
Now a majority of new leases are being inked by people moving from Manhattan.
“They are looking for more space to work from home,” said Rebecca Epstein, the company’s managing director of residential leasing. “They are looking for amenities within the building so they don’t have to go out. But when they do want to go out there is a lot of life on the streets with social distancing.”
New data released this week in a monthly report on New York City rents from real estate giant Douglas Elliman showed another steep decline in October for Manhattan — with a vacancy rate that topped 6% for the first time in the reports’ two decades-plus history.
Meanwhile, rents in Brooklyn dropped by a smaller percentage. And new sales numbers from StreetEasy in the borough show that Brooklyn’s residential market has been more resilient in the pandemic than any other area of the city.
“A lot of New Yorkers who are planning to stay in the city are taking advantage of record low mortgage rates and making commitments to close on a deal in Brooklyn,” said Nancy Wu, chief economist at StreetEasy. “Brooklyn is where people are committing for the long term.”
Compared with a year ago, the median rent in Manhattan for a newly leased apartment fell 16% to $3,036, including concessions like free rent for a month or two, according to the Elliman report. In Brooklyn, effective rents fell 5% to $2,815.
Home sales saw a near-record number of Brooklyn homes go into contract in August as pending sales in Manhattan and Queens continued to fall amid a market slowdown, according to StreetEasy.
Sales in five city neighborhoods did not include a discount from asking price and four of them are in Brooklyn: Downtown Brooklyn, Flatbush, Gowanus and Greenwood Heights. The other was South Jamaica in Queens.
Domino Park Sweetens Deal
Epstein of Two Trees, which helped create the DUMBO boom and is now redeveloping the site where the Domino Sugar factory once stood, credited the new Domino Park with drawing residents. The Domino project is expected to cost $3 billion before it is completed in 2025.
Without giving specific numbers, Epstein said: “Leasing is going through the roof” at the buildings already opened. Rents begin at $3,500 for a studio and run to almost $7,000 for a two-bedroom.
But she also conceded that Two Trees must be competitive by offering the same kind of deals – usually two months’ free rent — that other landlords are using to lure tenants. Half of new Brooklyn leases contain landlord concessions, according to the Elliman report, with owner-paid rent averaging 1.8 months.
But not everyone agrees that this is a tale of Brooklyn’s prowess. Jonathan Miller, the author of the Elliman Reports, believes the numbers speak more to Manhattan weakness than Brooklyn strength.
He notes the inventory of available apartments in Brooklyn is higher than at any point since 2008, when he first began tracking the measure.
“Manhattan has the largest amount of wealth and mobility and therefore there was a larger outboard migration from Manhattan than the other boroughs,” he said.
StreetEasy’s Wu predicts Brooklyn will continue to benefit from the changes brought on by the pandemic — including the need for more space and a willingness to accept longer commutes because people expect to work from home at least two or three days a week.
“The neighborhoods that are farther out have higher pending sales, like Sheepshead Bay,” she said. “The willingness to live in a place farther away from Manhattan, that has really been evident in that market.”
‘A Long Road Back’
Still, real estate experts are finding a silver lining even in the Manhattan data, where the number of new leases in October set a record for the month and was the highest since the financial crisis in 2008. They say the surge in leases show people are returning to Manhattan in significant numbers, even amid the high vacancy rate.
“Price reductions are slowly starting to work to pull in more tenants to sign leases in Manhattan — coming into the city or switching apartments,” said Hal Gavzie, executive manager of leasing for Douglas Elliman. “People are seeing the opportunities available in neighborhoods they couldn’t previously afford.”
He and Miller expect to see rents to continue to decline for the next several months, especially in Manhattan.
“It’s a long road back to eat into the inventory,” Gavzie said, given the historic 6% vacancy rate. “So much depends on how we get through the winter. Hopefully it’s manageable. And so much hinges on the vaccine.”