There’s no question that the arrival of Amazon (AMZN) to Long Island City will move the New York City neighborhood’s housing market — just look at housing prices in its hometown, Seattle.
Up until this year, Seattle, Amazon’s hometown has been the city with the fastest-growing home prices. Since September 2016, Seattle had been leading the S&P CoreLogic Case Shiller Home Price 20-City Composite Index and has maintained that spot each month until it was dethroned by Las Vegas in April.
In Long Island City’s case, it is already one of the hottest submarkets in New York City. In the third quarter the median sales price in the Queens neighborhood was $846,000, up 22% from the same quarter in 2010, according to StreetEasy data. Ironically, Long Island City is where the largest public housing development in the U.S. is situated — Queensbridge Houses, an aging 26-building complex that is going through a $607 million rehabilitation and is a stone’s throw away from the new HQ2 site.
“We believe the presence of Amazon HQ2 is going to drive demand up,” said Doug Ressler, senior analyst and director of business intelligence at Yardi Matrix.
Amazon selected Long Island City and Crystal City, Va., out of 20 finalists, after a year-long search for a second home. The company also announced that it will open a “Operations Center of Excellence” in downtown Nashville, Tenn. The e-commerce giant plans to build a 4 million-square-foot campus and will create 25,000 new jobs in Long Island City over a period of 10 years — meaning lots of folks will be looking for a convenient place to live near its campus.
Local real estate brokers have already started to see a pick-up in interest in the area. Eric Benaim, CEO and president of Long Island City-based brokerage firm Modern Spaces, told Yahoo Finance that traffic to open houses in the neighborhood this past weekend was up 400%.
“Apartments are going to be absorbed a lot quicker,” Benaim said.
A boom for landlords, not renters
Most of the new housing units in Long Island City in recent years have been rentals. The neighborhood delivered 12,500 units — the most new apartments created in the U.S. after the Great Recession, according to RentCafe. And these units aren’t exactly cheap. Average rents were at $3,458 a month in October, up 5.1% from a year ago.
“As development of HQ2 unfolds, longer-term issues could arise including testing management teams to consider or expand affordable housing options as economic growth and demand drives up housing costs in metro areas where prices are already high,” according to press statement from S&P Global Ratings.
Residential development has been booming in Long Island City, which boasts over 16,780 units since 2006, mostly rentals, and by 2020 more than 11,800 units are expected to be completed, according to the area’s local development group, Long Island City Partnership. RentCafe estimates are even higher, projecting 15,528 units to come online if prospective construction projects are completed.
The deal almost “bails out the developers that went all in,” said Jonathan Miller, CEO of appraisal firm Miller Samuel Inc., adding that the Long Island City rental market was oversaturated.
In the short-term, this is bad news for people who are searching for an apartment in the area in the next two years. “This means initially it will vaporize landlord concessions for rentals,” said Miller. These concessions usually come in the form of one month’s free rent.
In the longer term, Ressler notes, the supply of apartments won’t be able to accommodate the influx of people who want to live in Long Island City — especially since there’s a possibility that Amazon may be creating up to 40,000 jobs there over 15 years.
That may put pressure on other markets just a few subway stops away from Long Island City. Amazon employees who can’t find an apartment in Long Island City might gravitate to Queens neighborhoods like Sunnyside and Astoria, where apartments are slightly cheaper. They may even venture to some Manhattan areas like Midtown East, which is a ferry ride away from Long Island City.
“We’ll start to see upward rent pressure in the immediate vicinity,” said Miller.
Amanda Fung is an editor at Yahoo Finance.