The Euphoria Of HQ2 Is Wearing Off: Here’s How Investors Can Get Down To Business In Long Island City
When the news broke that Amazon would bring 25,000 new employees to New York City, Eric Michael Anton of Marcus & Millichap’s Global Capital Group was hosting a conference in Tokyo. But even halfway around the world, Long Island City was the name on everybody’s lips.
“Here we were, surrounded by all these people who live and work in Japan, and this neighborhood in Queens is the only thing anyone is talking about,” Anton said. “The feeling was euphoria — it was beyond euphoria.”
Now, that elation is wearing off. Amazon’s arrival won’t benefit all sectors equally — while some are primed for growth, others may be years away from taking off. Long Island City sits on a changing map defined by zoning constraints, fluctuating demand, opportunity zones and the transit system.
A special report from Marcus & Millichap sheds light on the sectors that Amazon will overhaul and which ones it will hardly touch. Here are the report’s biggest takeaways to help investors get down to business in Long Island City:
1. Office Demand Won’t Spike
While it seems like Amazon’s arrival might cause office rents to spike across Queens, slow growth is more likely. Office vacancy in LIC is sitting at a whopping 22.4% since banking behemoth Citigroup moved its employees back to Lower Manhattan. Even tens of thousands of new Amazon employees won’t cause an office rental shortage.
“It will take years before there’s an uptick in office leasing,” Anton said. “The small companies that serviced Citigroup will probably leave, and new tenants that service Amazon will move in."
But the future looks rosy for the Queens office market. Growing tenant demand will bring real estate valuations in Queens closer to parity with Manhattan and Brooklyn. According to Anton, the LIC office market will soon outpace Manhattan submarkets like the East Village and the Meatpacking District, just thanks to the sheer size of its land area.
2. LIC Retail Will Finally Become Viable
Marcus & Millichap’s report identifies retail as the sector that will be most heavily affected by Amazon’s move. There is currently a paltry 850K SF of retail space in LIC. Anton said that low number can be attributed more to a bad reputation than to a lack of foot traffic.
“Everyone’s been talking for years about LIC not having good retail for residents, so no one wanted to build there,” Anton said. “But Amazon’s move should be able to kick-start the retail sector.”
Amazon’s imminent arrival should give developers confidence to pursue building supermarkets, restaurants and entertainment businesses, which Anton said have been long overdue.
3. Residential: Not Everyone Wants To Live In LIC
While some developers are banking on LIC becoming a destination where new employees will want to live, work and play, Anton is more skeptical.
“These 25,000 employees will come in all shapes, sizes and salary levels,” Anton said. “Not all of them will want to live next door to the office. Not everyone subscribes to the ‘live-work-play’ neighborhood model — and that’s good. We want LIC to be as diverse as possible.”
He expects employees to spread themselves out. Younger employees may want to live in more established neighborhoods like Astoria and Williamsburg, which offer short commutes to LIC. Executives and managers with higher salaries and young families may want to commute in from the Upper East Side or Long Island. Anton added that the expansion of the ferry system in LIC will increase access to the neighborhood for employees living outside of Queens.
Residential developers are also getting creative when it comes to dealing with zoning restrictions. Anton’s team is working with developers to build innovative mixed-use projects in zones that are not approved for residential projects.
“The goal is to make LIC a destination for visitors from far beyond Queens,” Anton said.
4. Opportunity Zones Are An Added Bonus, Not A Game Changer
The excitement of Amazon’s move to New York is compounded by the fact that much of Long Island City sits within a qualified opportunity zone — investors can defer taxes on their capital gains by placing them into new projects in the neighborhood. But Anton cautions that simply being in a designated opportunity zone is not enough to turn a bad project into a good project.
“There are no guarantees that an opportunity zone project will be a good investment,” Anton said. “It could still lose money. So it’s important to work with a developer you trust on a project you believe in.”
Some of the biggest beneficiaries of Amazon’s move will be landowners in LIC. If their property falls within an opportunity zone, Anton explained, landowners should be able to sell high to developers hungry for new projects. Though the IRS rules do not allow them to reinvest in opportunity zone funds, landowners can work with brokers like Marcus & Millichap to invest the capital gains in a portfolio of tax-free exchange or triple-net properties.
“The opportunity zones in LIC have created their own ecosystem of landowners looking to sell, developers looking for tax-advantageous projects and investors looking for wealth management opportunities,” Anton said. “There’s a lot of excitement right now, but everyone needs information and advisers to make sure that their deals are actually going to help them in the long run.”
This feature was produced in collaboration between Bisnow Branded Content and Marcus & Millichap. Bisnow news staff was not involved in the production of this content.