Yesterday, Amazon officially announced that its new HQ2 headquarters will be split between not one, but two major metros. The retail giant will bring a 4 million-square-foot office to Long Island City in Queens, N.Y., and another 4 million-square-foot headquarters to Crystal City, Va., across the Potomac River from the nation’s capital.
The campuses will be composed of both existing office space and new buildings. In Crystal City, the new headquarters will become part of a new mixed-use neighborhood called “National Landing,” to be developed with local firm JBG SMITH.
The decision to expand to two locations came as a surprise after a year-long bidding contest from more than 200 cities. Amazon will invest $5 billion in the two new headquarters, each of which are expected to bring 25,000 workers to the two major metros, all of whom are expected to make six-figure salaries, says Amazon. Additionally, Amazon says the new headquarters will spur the creation of tens of thousands of ancillary jobs in the surrounding communities. Hiring for both headquarters is expected to begin in 2019.
While Amazon’s arrival will be a boon for the economies of its new host cities, an influx of well paid workers is bound to impact the housing markets in both major metros, which already have rent and home prices above the national average. Here, MFE looks at how HQ2 might affect rent prices and apartment supply as Amazon moves in.
HQ2 could impact the apartment rental market more than the for-sale landscape, as many of Amazon’s workers will want to live in dense urban hubs, at least when they initially move to their respective headquarter locations. However, a stagnant D.C. rental market may not experience the dramatic transformation many are expecting.
The average rent price in Washington D.C., as of October was $2,072, the same price as it was the year prior, while rents fell year over year in Arlington, Va., down 2% to an average price of $2,059, according to RentCafe.
A Zillow report from April predicted that Washington, D.C. would see a modest boost in rent prices of 0.6 percentage points if Amazon were to come to town. A similar analysis from real estate data analytics firm CoStar Group in May estimated a 0.16% rise in apartment rents per year. The data was based on the hypothetical 50,000-employee headquarters, so the announcement of two H2Q’s could make the impact even more minimal.
“I am not worried about the metro area’s ability to absorb this type of economic coup, because it’s going to take Amazon several years to grow the headquarters,” says Ben Sage, director of the Mid-Atlantic region for market intelligence firm Metrostudy.
While vacancy rates in the District are still below the national average, they rose from 2.7% in 2017 to 3.6% in the second quarter of 2018, according to Delta Associates.
But the city is still on a hot construction streak even as the pace of leasing has slowed. The same report showed that over the next three years, more than 29,000 apartment units are expected to deliver in the region, up from under 28,000 in 2017.
“The new units are leasing up well, but rents are stagnant, so that tells me that while D.C. is a competitive apartment market, it still has a lot of slack,” says Sage. “Plus, there’s thousands of units in the pipeline as it is, so it may take a few years to see a big impact even with Amazon’s arrival.”
Expect Queens to Change
CoStar estimated the impact on New York’s rental market to be even more minimal than that of D.C., at 0.12% per year. But, even a small increase in rent prices could still harm affordability in Queens specifically, an area that Quita Syhapanya, regional director of the Northeast region for Metrostudy, notes is one of the last affordable boroughs in one of the most expensive cities in the country.
As of October, RentCafe logged the average rent in Queens at $2,194, up 2% year over year. That’s almost half the price of Manhattan’s $4,041 average. Long Island City, where Amazon’s HQ2 will sit, posts an average rent of $3,332 for the neighborhood.
“I think the arrival of HQ2 is going to cause a huge jump in rents throughout the whole borough of Queens—I’d venture to say that they’d jump up from $2,194 to $3,000 once Amazon is fully in place,” says Syhapanya.
The rise in rents will impact the already dwindling affordability, he notes.
“Construction costs and land prices have been going up, and the labor burden is putting a strain on building, so affordability will be a major issue going forward as prices continue to rise,” Syhapanya says. “If developers just build for the high-end Amazon workers, local residents are going to get pushed out of the city.”
Amazon’s arrival in Queens coincides with the neighborhood’s apartment boom. Housing completions increased the most in Queens among the five boroughs in 2017, rising 46.4% or by 5,041 units, according to the 2018 Housing Supply Report conducted by the New York City Rent Guidelines board. And RentCafe reports that approx. 15,400 units are under construction, planned or in a prospective phase in Long Island City.
“Queens has already been going through a huge housing boom for the past year and a half with a lot of new development coming online—some of the most in the country over the past ten years,” says Syhapanya. “Amazon is just going to exacerbate that already rapid growth.”
Syhapanya says that even with the area’s recent ramp up in development, Queens isn’t ready to handle the influx of wealthy renters. Vacancy rates are low—in 2017, the vacancy rate in Queens was 3.5%, lower than the national average which is currently almost at 5%, according to Reis. Developers will need to add a significant amount of inventory to accommodate the new residents.
“Amazon is going to bring 25,000 new people to the area, plus there are existing residents and other people migrating to New York City on a regular basis,” he says. “The city may be able to handle it at first, but it’s going to be pretty hectic and I think the city will have to add an additional 30,000 to 40,000 new units to meet demand.”