Despite headlines in the last week declaring record highs, I predict that over the next 12 months supply will finally overtake demand in the NYC residential sector. The high level of current building activity and the expected number of units to be completed in the next year are easily evident to any layman who looks at the skyline or at street level, and/or to anyone reading mainstream local news, where real estate increasingly competes with sports as the lead topic around town. Requiring a little more analysis and maybe a hunch or two, I believe demand will start tailing off from its furious pace due to the recently stronger dollar, the smaller base of 20-somethings still living at home and then spinning off seven years after the ’08 crash, and the fact that this city will see diminished demand by college graduates due to it’s being so much more expensive to live in than comparables.
Before we get to what this means for residents of LIC, let’s quickly address the other real estate sectors in the neighborhood.
Office – rents will continue to ratchet up as B-class1 real estate in Manhattan gets upgraded and the only alternative for many businesses is to leave the borough for less jazzy digs. Sale prices will likewise continue to set records. This is mainly due to the abundance of OPM (Other People’s Money) in the form of real estate and private equity funds competing for a limited number of properties and using what may be overly optimistic rental projections to justify current prices. Were it to sell for its offer price, I’d view the Citi Tower as a good example of this.
Industrial - last year we described it as a noose tightening for renters in this sector, and this trend continues for the exact same reasons this year.
Retail – as the prospect of more residents living in LIC becomes more tangible with the completion and filling of HPS Phase 1, and all the cranes in Court Square/Queensboro Plaza, those merchants with deeper pockets are paying the offering prices. In turn this is driving landlords to continue upping the ante. The fast-growing and private equity-backed Bareburger’s quick closing on the former Cranky’s location is indicative of this. If you strike a deal a month after the place went up for lease, you probably paid the asking price, which I heard was set quite high relative to recently consummated deals. Danny Meyer in Union Square is not the only city business opting out based on current rates, expect the same calculus and fate for other local businesses in the next year.
Residential – what’s changed in the last year?
Sales – there have been a lot of what I call ‘infill’ projects started and finished during the year. These are ground up construction of 3 to 30-unit buildings on small lots, like those occurring on 5th Street, 11th Street, and next to the firehouse. The economies of scale only work for projects like this if they are condos not rentals, and if prices are very high. There has also been a lot of townhouse upgrades/conversions. Unfortunately both these sources of supply have not amounted to much, and therefore selling inventory in LIC is still very low.
With no big condo projects slated, I expect this paucity to continue for several years. Combined with a continuing demand to live permanently in LIC, and mitigated somewhat by the neutral stance I have for NYC real estate as a whole, expect local selling prices to increase by 2-3% a year for the next few years.
Rentals – last year I predicted that rental rates in Court Square would be flat to down for the next few years. Nothing changes my view on that, and the closer reality of the new supply coming on is a further re-affirmation. Also you can lump Queensboro/Queens Plaza into this sub-neighborhood.
As for the waterfront, the rent increases we expected to resume after a multi-year lull, have indeed. Those renewing have seen 3-5% jumps, while new leases have been in the range of 4-8%, and select apartments have inexplicably had double-digit increases. The latter group, has not only occurred at Avalon buildings, but now at TF Cornerstone’s as well. Moreover, these increases have occurred despite the considerable number of current Center Boulevard residents who won the HPS lottery, and are vacating their apartments right now during the heavy leasing period of summer. Once the dust settles on that migration, TF Avalon will hold all the cards for those renting in their buildings. So expect the upward spiral to continue all along the waterfront.
//Missing Rita has been found – thank you to Andy who emailed that “Rita is now working at the new-ish “Phoenix” hair salon at the corner of 49th and Jackson. I know this because a couple days ago she was on the sidewalk telling passersby “I work here now! I work here now!”‘
28-Story, 296-Unit Rental Building Filed for Paragon Paint Factory on Vernon – too late and not going to be enough to halt the coming surge on Center Blvd
We’ll Do It Live – despite budget shortfall, library construction begins. New renderings of it in article.
Court Square Muni Garage Slashes # of Monthly Permits – some commuters and residents upset, others not so
- is there even any C-class RE left in Manhattan? [↩]