Though often overshadowed by Manhattan, Queens County is a New York City borough rich in population, density, culture, and real estate—and institutional investors are starting to take notice.
The county has a population of approximately 2.3 million, making it the second-most populous county in the state. In fact, were Queens an independent city, it would be the fourth-largest city in the nation. The county also has a very diverse population, thanks to strong regional immigration trends—approximately half of the residents are foreign-born. It's also home to the New York Mets, tennis' US Open, the Aqueduct Racetrack, and New York City's two largest airports, JFK and LaGuardia.
The western and central parts of the submarket are more urban than the eastern parts, which are adjacent to Nassau County on Long Island. High-density apartments are primarily located in Astoria, Long Island City, Flushing, and Jackson Heights, which have the best transportation options to Manhattan and generally contain the submarket's largest employers.
Population growth since 2000 has been 3.5 percent, which is actually the slowest of the city's five boroughs. Despite this, Queens still boasts low single-digit vacancy rates—as a high-barrier market, there's been minimal new supply. And demand is sure to increase, due to various positive developments, including an expanding airline industry.
For one, Delta Air Lines plans to break ground on a $1.2 billion terminal at JFK, which will replace the current PanAm terminal built in the 1960s. The building is expected to be completed in 2013, and the process will bring with it an estimated 6,400 construction jobs, a definite boost to the submarket's apartment demand. Delta is also expected to hire 600 flight attendants locally, as it focuses on adding more international flights, while American Airlines will soon bring back 545 furloughed flight attendants and 250 pilots.
These factors all add up to one certainty: As a rental market, Queens is poised to get the royal treatment.
Firming Fundamentals
Although the amount of new supply coming to market has been muted during the downturn, that dynamic is starting to change as the capital markets open up.
Of all the county's submarkets, Long Island City should see the bulk of new construction, as waterfront areas are highly desirable and have been a focal point for new construction in recent years. Other major developers in Long Island City and their capital partners are moving forward with ground-up residential projects and are in the market for construction financing.
In fact, TF Cornerstone broke ground last August on the next stage of its massive Queens West project in Long Island City, a 41-story tower featuring 367 units. The developer also poured the foundation for another tower there in December, which will bring an additional 345 units on line, and also plans to move forward with two more towers (with 806 units and 586 units, respectively) in subsequent phases this year.
Two other huge new developments are also starting to kick into gear. Plans are advancing for the 5,000-unit Hunters Point South, a massive workforce-housing development. The first phase of the project will bring 1,000 units on line and is slated to open in 2014. And the Willets Point Redevelopment, a 62-acre, mixed-use, master planned community still in the planning stage, is expected to provide more than 1,700 rental units and more than 5,300 permanent jobs and 18,000 construction jobs.
These projects present supply-side risk to the forecast, as TF Cornerstone's project alone will nearly double the market-rate apartment inventory in Long Island City. However, in a measure of just how much demand there is, the county's vacancy is projected to be flat throughout the next five years despite all of those new units, according to market research firm Property and Portfolio Research (PPR).
The vacancy rate currently sits at 4.2 percent, after peaking at 4.8 percent in 2010, and is projected to remain comparatively tight at between 4.1 percent and 4.2 percent through 2015. In fact, Queens is outperforming the New York City metro area, currently at 4.7 percent, according to PPR.
Meanwhile, as a result of the changes in supply and demand, rents in Queens County declined 11 percent over the past two years, keeping them competitive with those in other submarkets. But as demand continues to rise, rent growth over the five-year forecast is projected to average 3.4 percent annually, according to PPR. Current monthly rents in Queens average $2,340, compared with $3,748 per month for the broader New York City metro area.
Transaction Velocity
Being one of the larger submarkets in the metro area, Queens attracts ample investment activity, with $386 million in multifamily sales closed or under contract since 2009.
Historically, buyer activity has been limited to local players. But this dynamic is changing, due to recent and ongoing future development of new apartment product that is attracting national and institutional investors. In fact, TIAA-CREF recently purchased the 115-unit Astoria N/W for nearly $370,000 per unit, at a cap rate of 5.4 percent on actual income.
Activity has picked up markedly over the past 12 months, with a total sales volume of $227 million. These sales indicate that pricing is firming up, as price-per-unit metrics increased from an average of $93,000 in 2009 to $124,000 in 2010 and have climbed further, to $189,000, so far in 2011. Cap rates also firmed, now down in the 5 percent range for newly built product.
Queens can be difficult to summarize— it's a collection of unique neighborhoods that often don't have solid boundaries. Yet in many ways, including the strength of its apartment market, this borough stands firmly on its own.
Jeffrey Julien is a director in the New York City office of Holliday Fenoglio Fowler.
