There is much discussion lately of the slow down in the real estate market throughout NYC. Many high profile, luxury new development projects have been put on hold until further notice. Which begs the question, if you construct a new building in Brooklyn or elsewhere in the city, will the buyers or renters come?
I think that greatly depends on the type of product you’re planning to construct, and whether that portion of the market is underrepresented or totally over-saturated. After all, there is no such thing as ‘one size fits all’ in the world of real estate. There are various kinds of housing, in this great city of ours, from cooperatives, condominiums and condops generally ranging in size from studios to 3 bedrooms, to townhouses, multi-families and mixed use properties. It is a valuable trait of the developer to recognize what the next wave of buyers and renters will prefer in terms of type of housing.
In addition to the types of property, developers also need to assess the location of their development, and more specifically, what housing options are underrepresented in that area. If we look at trends from the past few years, focusing specifically on Brooklyn, we would see that 1 bedroom condos had the highest demand between 2008-2010, while the city and the world were reeling from the U.S. housing market collapse and the economic collapse of the world’s top financial institutions. This may be best explained by a period of downsizing in combination with young professionals’ burgeoning interest in Brooklyn, and reflective of a demand for first time buyer starter apartments.
Around the Spring of 2010, the demand for 2 bedrooms versus 1 bedrooms began to arise, eventually resulting in townhouse demand matching that of 1 or 2 bedroom apartments during Spring of 2013. By Spring of 2014, townhouse demand had exceeded that of 1 or 2 bedroom apartments, highlighting a growing urgency for larger homes and an influx of more affluent buyers across the borough, relocating from Manhattan, other metropolitan cities and abroad. A major contributing factor to this trend of buyers into Brooklyn was a burgeoning tech scene and shared office space like We Works, with several companies relocating their offices to Brooklyn from the West coast and Manhattan.
For the developers who recognized this trend, appropriate housing in the form of higher end condos and upscale, two family townhouses ensued. By August of 2015 that inventory appears to have peaked with an average price per SF of $860 in Brooklyn, all the way up from a measly $550 per SF back in the Spring of 2010. The following Spring of 2016 saw that average drop to around $800 per SF with new development inventory decreasing ever since. So now the developer must go back to the drawing board, to figure out what inventory is not currently represented in the Brooklyn market.
And sometimes, developers can be stubborn in recognizing the signs, that the inventory doesn’t fit the demand. They may try to offer more amenities to sell the units, but eventually the market will self correct, and prices will go down. Fewer developers will build during these times of uncertainty, but some will have the vision to determine the next wave of home buyers and renters and capitalize upon that. So what do we see happening next?
The townhouse market appears very saturated, although newly gentrifying areas like East New York, Cypress Hills, East Flatbush, Flatbush and Kensington, may provide locations affordable for developers to construct or renovate and flip existing townhouses to home buyers seeking larger living spaces at a more affordable price point than the prime areas of Brooklyn. These areas may also offer opportunity to develop rental buildings, with a potential affordable housing component tied in, to provide tax incentives to the developer. Additionally, condo developments will be likely across Brooklyn, with more emphasis on space, quality, live-ability and lifestyle, than on a trendy and transient amenities package or flashy finishes. I believe the most important take away for developers right now, is to recognize that there are segments of the buyer and renter pool, whose housing needs are not being constructed and are thus relocating out of the city. This is an opportunity for a developer, who is willing to accept smaller margins of profit for a growing segment of the population, in exchange for less risk during an uncertain time.