The Recent Amazon HQ2 Decision Roils NYC’s Real Estate Market

Amazon’s much-publicized “HQ2” search had mayors across the country jockeying to woo the retail giant. When Amazon announced in November intent to build a campus in the Queens neighborhood of Long Island City – bringing 25,000 new jobs with it – the New York real estate community rejoiced. Brokers and Developers are left disappointed this week as Amazon’s latest announcement dominated media headlines. The online retail giant abandoned the previous plan to build its second headquarters in Long Island City (LIC). On its official blog, Amazon attributes the reversal to lack of support from the local community and loud dissent from certain city activists and politicians.

the Amazon HQ2 decision - how CRE markets have responded

Fueled by the HQ2 announcement, LIC’s real estate market had heated up substantially. Real estate investors once counted on a substantial new demand driver (with 25,000 projected new jobs) from Amazon’s HQ2, and expected surging residential demand and planned massive office developments. Now that the plan has been scrapped, real estate developers’ vision of transforming LIC into a 24/7 neighborhood and company town has evaporated, and LIC remains as it was: a close-in, transit-rich outer borough neighborhood. Appeal in the submarket’s housing market is not obsolete, yet real estate developers must re-evaluate the supply/demand balance in LIC’s office and housing markets.

Real Estate Investing in the Outer Boroughs Following the Amazon HQ2 Decision

This is a sobering moment for New York’s real estate industry. Amazon’s reversal reminds real estate investors to move cautiously, without overly relying on market fads or any single demand driver. With the focus taken off of LIC,  investors can look beyond this submarket and source promising investment opportunities elsewhere.

Amazon's HQ2 decisions: a timeline

Unlike Long Island City, Williamsburg is not just Manhattan’s cheaper housing alternative, but an ideal neighborhood with superb cultural options. Other burgeoning Brooklyn neighborhoods like Red Hook and Downtown Brooklyn not only offer excellent access to Manhattan and cultural opportunity, but in many cases have also been designated as Opportunity Zones, offering unprecedented tax breaks to investors. Abundant urban open space, walkability, boutique shops, restaurants, and bars enrich  residents’ living quality while unique destinations like flea markets, breweries, distilleries, and concert venues have transformed neighborhoods across Brooklyn. A number of outer borough neighborhoods are now seen as more than bedroom communities to Manhattan, becoming popular ‘night-out’ or day trip destinations for visitors.

Once considered a trendy hipster neighborhood, Williamsburg’s creative energy, artistic presence, and trend-setting spirit has been attracting more business activity. In 2001, a digital media and multinational broadcasting company, Vice Media, relocated its headquarters from Montreal, Canada to Williamsburg in order to scale its business worldwide. In 2012, Amazon expanded its presence in New York by acquiring a 40,000 square-foot warehouse and transforming it as a studio space devoted for fashion products. Tech startups like ConsenSys, a market leading blockchain technology company that raised $50 million venture capital in 2018, are establishing headquarters in Williamsburg in order to take full advantage of its vibrant dynamic, tap into relatively affordable office space, and appeal to millennial workers.

Despite the Amazon's HQ2 decision, plenty of demand drivers remain in Brooklyn and Queens

A Diverse Array of Demand Drivers Remains

The Amazon HQ2 decision aside, there is plenty of new business activity in NYC’s inner outer-borough neighborhoods. A wide array of companies – from tech startup, alternative retailer, fashion, and media – desire lofty office space, high ceilings, and optimal column spacing – an  aesthetically-minded office solution that can inspire their creativities and stay in-line with their modern identity while remaining more affordable than options in Manhattan. To satiate such demand, real estate developers in Williamsburg and beyond have been focusing on warehouse conversion, re-development, and other creative development plans. In the near future, value-add office, residential, and mixed-use investments in certain neighborhoods may even qualify for Opportunity Zone tax incentives.

Don’t Snooze on ‘Billyburg’

When it comes to office and retail markets, Williamsburg is considered the crown jewel among Brooklyn’s submarkets. According to PWC and Urban Land Institute’s Emerging Trends in Real Estate 2019 report, survey respondents rated Brooklyn second place among overall real estate prospects in the country, first place on U.S. retail “buy” recommendation[1], and second place on office property “buy” recommendation in the Northeastern Region. In 2017, Williamsburg outperformed the entire Brooklyn borough with the highest average sale price of $1,710 per-square-foot, significantly above the Brooklyn-wide average sale price of $694 PSF.

The Amazon HQ2 decision may temper local real estate investor optimism for a time, but the fact remains that New York City is still the real estate capital of the world, with burgeoning Brooklyn neighborhoods driving significant transaction volume and investment opportunity for years to come.

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[1]Based on percentage of surveyors who responded “Buy” versus “Hold” or “Sell” on a given market. Source: Emerging Trends in Real Estate 2019 survey, PWC, Urban Land Institute

By Charles Jin
Charles joined EquityMultiple in 2018. Charles provides solutions to clients and strives to enhance client experience while supporting the firm's investment and operations efforts. Charles received a B.A. in Economics and Mathematics from Vanderbilt University. Charles is a CFA Level III candidate.
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