Queens and Brooklyn are no longer on the outside looking in.
Ariel Property Advisors
2020 was, of course, a historic downturn for New York City, but as that year came to an end, activity and transaction volume began to increase once again. This uptick in activity has continued through 2021 into 2022. The highlight of this recovery lies not in Manhattan but in the outer boroughs, specifically Brooklyn and Queens, which have been invigorated by tremendous investor interest and are in many ways more aligned in their market dynamics with the suburbs and middle American cities than with Manhattan.
Queens for many years was viewed as a slow and steady market with sporadic growth in the multifamily, industrial and development asset classes. However, 2021 revealed a much stronger market that has the potential to alter the borough’s reputation for the long term. The main driver of this is stable industrial properties, as well as new developments, due to the access they offer to locations throughout the New York metro area.
As a result, Queens had a significant increase in both investment sales dollar and transaction volume, increasing by 46 percent and 52 percent respectively when compared on a year over year basis.
Queens is Becoming a Driver for Metro Area Business
The industrial sector, specifically the warehouse and storage industry, has the potential to set the stage for Queens to become a new haven for businesses in 2022. Demand for warehouse and industrial space at the national level is high, with vacancy rates below 5% at the end of 2021. Driven by the rise of e-commerce, a trend accelerated by the pandemic and social distancing, this sector is poised for further growth as new stock develops and could anchor a sustained uptick in activity in Queens.
The area presents tremendous logistical potential for tenants due to its accessibility to Long Island and the other boroughs. A prime example of where this sector may be heading is also the borough’s top transaction in 2021: a $132 million dollar sale of a 130,000-square foot warehouse. Fully-leased, the last-mile distribution center sold for $1,015 per gross square foot and $587 per lot square foot, both of which represent impressive price marks when compared to the borough’s average.
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This growth is not just a local trend. Nationally, the industrial, warehouse and storage sectors had strong performances, as average sale prices surged 13.5 percent by the end of 2021 and have seen consistent growth over the last year. As Queens continues its upward trend and momentum, so have other locations such as Seattle, the Bay Area and New Jersey.
Institutional funds are seizing this opportunity as well presenting the borough as a prime opportunity in a number of asset types and sectors. In total, there were 82 transactions for warehouses, storage and industrial properties in 2021 totalling nearly $800 million in dollar volume.
“The industrial sector’s other strength is that there’s something for everyone, from high-end new construction to affordable prewar buildings. As a result, the Queens real estate market is fast-becoming a hotbed for investment and has seen promising and sustained growth since the worst of the pandemic,” said Alexander Taic, Director – Investment Sales at Ariel Property Advisors.
Specialized Capital Presents New Opportunities in Queens
In 2021, Queens also showed signs of resilience in specialty product transactions–specifically in film studios. A prime example of this was the purchase of Kaufman Astoria Studios by Hackman Capital and Square Mile Capital in November. Though the purchase price wasn’t disclosed, the site was valued at more than $600 million. This came on the heels of Hackman’s 2020 purchase of Silvercup Studios.
This also helps to emphasize the resurgent importance of the film industry to New York City which largely depends on studios and lots in Queens and Brooklyn. The industry has added approximately 35,000 direct jobs over the last 15 years and seen consistent annual growth. Even with the fluctuations of the pandemic in recent years, the industry had at least 34 projects filming at the end of Q3 in all boroughs in 2021.
Brooklyn–The Multifamily Powerhouse
Manhattan has traditionally been the leading institutional borough in New York City when it comes to multifamily properties, leading the way in larger investments across most asset classes compared to the other boroughs. Brooklyn, however, is starting to be a multifamily powerhouse.
While some sectors such as the commercial and retail markets lagged behind their pre-pandemic numbers in 2021, in part due to fluctuating regulations and mask restrictions, the broader landscape in Brooklyn is an active and growing multifamily market that is poised to continue to rival Manhattan. The Brooklyn multifamily market saw 118% growth in 2021 compared to 2020 in terms of dollar volume and a 60% increase in total transactions.
Larger funds also placed some major bets in the borough, specifically in the Brooklyn housing market. As a result, Rockpoint, a brand synonymous with large-scale investments, now owns a big chunk of the borough, which is poised for further institutional investment.
“Brooklyn behaves similarly to the suburbs which benefited from those who fled Manhattan earlier in the pandemic,” said Sean R. Kelly, a partner at Ariel Property Advisors. “We saw the second half of 2021 showcase the resilience of the Brooklyn market and we look forward to seeing continued growth into 2022.”
While large-scale affordable portfolios traded hands in the last year, the affordable housing market was not the only multifamily segment that has performed well. RXR, which has diverse investments but is most known for its strong presence in Manhattan’s office market, placed a $220 million bet in the luxury apartment sector with the purchase of 87 Jay Street. Overall, more than $3.3 billion traded hands in the multifamily sector alone in Brooklyn in 2021.
Another indication of the resilience of the Brooklyn multifamily market is the consistency of price per square footage in new developments, especially as a housing shortage persists. Consider that new development contracts for all residences were up 150% last year, setting the stage for a competitive landscape that could see prices continue to rise, along with both dollar and transaction volume in 2022.
In many ways, Brooklyn and Queens reflect the national real estate market. Renter and buyer interest is very high and the housing market has seen robust demand compared to pandemic levels in 2020. Vacancy levels are back to 2019 levels while both coastal and middle-America cities recovered across the board. In addition, interest in new developments and institutional investments in a host of asset-types has been consistent in the last year and should continue into 2022. As noted, industrial vacancy is down even as completed projects and new development construction remain at an all time high when measured by square footage.
As regions across the country continue to grow and contend with coastal cities that normally lead the way, Queens and Brooklyn are coming for Manhattan’s real estate crown as investment property sales remain consistent and see steady growth.