New York County, NY Cap Rates by Neighborhood

The Borough-Wide Gross Yield: Why 4.72% Is the Wrong Number to Underwrite

Manhattan's aggregate gross yield of 4.72% (annual rent of $56,904 divided by a median price of $1,206,341) is a blended figure that obscures more than it reveals. The borough median price folds together $1.68M condos, $875K co-ops, and sub-$750K East Harlem units into a single statistic. The resulting 4.72% is not a cap rate you can find in practice; it is an average across wildly different asset types, regulatory regimes, and neighborhood fundamentals.

What matters for an investor is the spread between a pre-war Midtown East co-op carrying full rent stabilization and a market-rate two-bedroom in East Harlem acquired at a discount to the borough median with a confirmed transit catalyst six years out. That spread is wide. The sections below work through each named submarket and asset segment where the brief provides data sufficient to underwrite.

Borough-Wide Context: Gross Yield vs. Net Reality

Start with the math on a representative median-priced property. At $1,206,341 and $4,742/month gross rent, the nominal gross yield is 4.72%. Before debt service, a landlord running a market-rate unit faces:

• NYC income tax at a top marginal rate of 3.876% on top of state income tax, bringing the combined state and city rate on rental income to about 14.8%.
• Rent-growth caps for pre-2009, 4-unit-plus buildings under Good Cause Eviction: annual increases capped at 5% plus inflation, currently totaling about 7.2%, or 10%, whichever is lower.
• Rent stabilization on pre-1974 stock: 3% for one-year leases commencing October 2025, while reported operating costs for property taxes, insurance, and utilities are running 8–16% higher year over year.

None of that is a cap rate you can spend. Net operating yields in stabilized or Good Cause-covered buildings are almost certainly running below 3% at current prices, often well below on recently acquired assets underwritten at pre-stabilization rent projections.

The one offset: the federal One Big Beautiful Bill Act, signed July 4, 2025, permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025, and raised the SALT deduction cap to $40,000. That helps equity investors in year one of new acquisitions or conversions but does not change the underlying NOI math.

Neighborhood Breakdown

Midtown and FiDi (Office Conversion Pipeline Zones)

These are not traditional buy-and-hold yield markets. The defining story through 2026–2030 is the office-to-residential conversion pipeline. Manhattan had 43M SF of vacant non-Class-A office space as of Q1 2025. NYC is on track for 9.5M SF of office-to-residential conversion starts in 2026, more than double the 4.3M SF started in 2025. The Comptroller's office estimates 15.2M SF eligible for residential conversion, expected to produce about 17,400 new apartments, primarily below 59th Street.

For yield investors already holding Midtown East or FiDi rentals, that pipeline represents 6,500+ new rental units hitting by 2028. Near-term rent growth assumptions in those corridors should be conservative. The City of Yes reforms expanded conversion eligibility to pre-1991 buildings (from the prior pre-1977 cutoff), widening the pipeline by pulling in two decades of additional office stock.

The 467-m tax abatement provides 35-year tax certainty for conversion projects with at least 25% affordable units, which is relevant for developers but does not directly benefit existing landlords competing against newly converted, tax-abated product.

Effective gross yield range estimate for market-rate Midtown/FiDi rentals: 4.0%–4.7% gross, 2.5%–3.2% net after operating costs and income tax drag, with near-term rent-growth headwinds from conversion supply.

East Harlem

East Harlem is the highest-conviction yield story in the brief. Average rents of $3,744/month are 21% below the Manhattan average of $4,742/month. The median home sale price of about $738,000 as of late 2025 is 39% below the borough median of $1,206,341.

Running the yield math on East Harlem: $3,744/month in gross rent against a $738,000 purchase price produces a gross yield of 6.09%. That is 137 basis points above the borough average and crosses into territory where net yields can be positive after operating costs, assuming market-rate (not stabilized) units.

The infrastructure catalyst is defined and de-risked. The $6.99 billion Second Avenue Subway Phase 2 extension will bring Q train stations to 106th, 116th, and 125th Streets, with passenger service targeted for September 2032. The MTA awarded the $1.97 billion tunneling contract (Contract 2) to Connect Plus Partners in August 2025, and in June 2026 awarded Contract 3 to a Skanska-Traylor-Walsh joint venture for the 106th Street station. Both of the most complex construction phases have signed contracts. The project carries a $3.4 billion FTA full-funding grant agreement.

Properties within walking distance of those three planned stations are the clearest infrastructure-driven appreciation play in the borough over a 6-year timeline.

Washington Heights and Inwood

Average rents in Washington Heights of about $2,706/month are 43% below the Manhattan average. The brief does not provide a neighborhood-specific median sale price for Washington Heights or Inwood, which limits direct yield calculation. What the brief does confirm: rents rose 8–10% from 2023 to 2025 as demand from renters priced out of Harlem and Midtown pushes north, and demand is beginning to outpace supply.

For investors who acquired in the 2022–2023 window at lower prices, that rent growth represents real yield expansion on cost. For new entrants, the entry price question is unanswerable without neighborhood-specific sale price data, but the rent trajectory is among the strongest in the borough on a percentage basis.

Neighborhood Comparison Table

Asset Segment: Co-ops vs. Condos

Co-ops represent about 70% of Manhattan's housing stock by unit count. Median co-op prices are $875,000 against median condo prices of $1.68M. At borough-average gross rent, a co-op at $875,000 produces a gross yield of about 6.51%, which looks attractive on paper. The catch: co-ops carry proprietary lease structures, board approval requirements, and sublet restrictions that often prevent market-rate rental use. They are ownership products, not income properties in the traditional sense. Investors cannot simply apply the $4,742 rent figure to an $875,000 co-op purchase and call it a 6.5% yield.

The investable residential income product in Manhattan is condos and small multifamily. Condo median prices of $1.68M produce a gross yield of about 3.39% at borough-average rent, which is below the threshold where net yields work without appreciation carrying the return.

Cap Rate Compression vs. Decompression

Prices are moving slower than rents, which is the one positive signal for yield expansion. Home prices rose 2.21% year over year through June 2026. Median rents rose 7.9%–9% year over year in early 2026. That dynamic compresses price-to-rent ratios and expands yields on existing holdings.

The overall price-to-rent ratio of 21.2x is down from where it would have been when rents were lower. If rent growth of 7–9% continues against price appreciation of 2%–3%, gross yields will improve toward 5%+, at which point net yields in market-rate, un-stabilized buildings become marginally workable.

The risk to that scenario: the 9.5M SF office conversion pipeline adding 6,500+ rental units to Midtown and FiDi by 2028. Supply pressure in those corridors could absorb some of the rent growth that the broader borough is producing.

Flood Insurance Adjustment

FEMA flood maps for NYC have not been updated since 1983. When updated maps are finalized (still pending as of mid-2026, after a technical dispute that began in 2015), Lower Manhattan and waterfront parcels may face new mandatory flood insurance purchase requirements. The 2016 FEMA finding agreed with NYC that preliminary maps overstated the floodplain, but sea level rise projections are still being incorporated. Investors in Battery Park City, FiDi waterfront, and Lower Manhattan should hold 20–50 basis points of gross yield in reserve against potential new insurance cost, pending map finalization.

The City of Yes zoning reform also prohibits basement and cellar ADUs in FEMA Special Flood Hazard Areas and DEP coastal flood risk areas. Any ADU income underwriting in affected waterfront parcels should be zeroed out until flood zone status is confirmed.

Cap Rate Outlook

Three forces will shape net yields over 2026–2032:

Compression pressure: The Good Cause Eviction cap of about 7.2% on covered buildings and the 3% stabilization cap on pre-1974 stock, combined with operating cost inflation running 8–16%, will continue compressing NOI in covered buildings regardless of what happens to gross rents. The 14.8% combined state and city income tax rate means every dollar of yield shrinks more than in competing markets.

Expansion opportunity: Rent growth of 7.9%–9% against price appreciation of 2.21% is expanding yields on a cost basis for existing holders. East Harlem's 6.09% gross yield, tied to a confirmed transit catalyst with signed construction contracts, is the clearest current opportunity for investors who can acquire market-rate (not stabilized) product ahead of the 2032 subway opening.

Wildcard: JPMorgan's NYC headcount is down 20% over the past decade despite a $3 billion new headquarters. Apollo Global Management has announced plans for a second headquarters in Texas or South Florida. If financial-sector workforce migration to Sun Belt cities accelerates, the high-income renter pool supporting Manhattan's premium rents faces a structural headwind that none of the yield math above accounts for.

For investors underwriting specific deals in East Harlem, Washington Heights, or conversion-eligible Midtown assets, model your specific deal with our investment property calculator to stress-test net yields against stabilization exposure, flood insurance scenarios, and the 2032 transit timeline.