Developers Chasing Rent Growth In Queens Amid Cost-Fueled ‘Brooklyn Spillover’
The momentum that pushed the Queens neighborhood of Long Island City to become the most active multifamily submarket in the country is spreading deeper into the borough, pulling up rent prices where supply isn't catching up.
Renters who are being priced out of other New York City boroughs and would-be buyers unable to afford mortgages are contributing to rent growth in Queens. Even as new apartments are approved, demand for housing still outstrips supply in the borough, developers and landlords say. While residents wait for huge developments like Innovation QNS to come out of the ground, the borough’s potential growth may be hampered by a lack of affordability.
“We're seeing numbers that are, from a rental standpoint, north of $90 per foot, which is exceptional,” Marko Kazanjian, capital markets managing director at JLL, told the audience at Bisnow’s Queens and Long Island City State of the Market last week. “I mean, that is something that is outstanding to see.”
A former industrial hub on NYC’s waterfront, Long Island City has transformed since its 2001 rezoning. More than 18,500 new apartment units had been built in the area between the rezoning and the end of 2021, with another 4,400 under construction in April last year and almost 24,000 units still in the planning stages at the time, according to data from Yardi Matrix.
Now, developers say, they see the potential for Long Island City’s exponential growth to spread to other Queens neighborhoods.
“I’ve always viewed Astoria as the younger sibling of LIC,” said Andrew Steiker-Epstein, Charney Cos.' vice president of sales, leasing and marketing. “Now, a lot of institutional investors are seeing the same really exciting numbers that we saw in LIC two or three years ago, and it looks like it's on the same trajectory.”
Some developers and owners are already snatching up deals in well-connected Queens neighborhoods farther east, First Pioneer Properties President Suresh Sani said at the event, held at The Rawson building at 33-02 Skillman Ave.
“As a result of what's happening in Long Island City and how it's just going east, we've invested in some residential buildings in Sunnyside, and we’ve also bought a handful of retail in Astoria on Steinway Street,” he said. “I do believe things are just continuing to push — Elmhurst is a great neighborhood, in my opinion. Flushing is another one.”
Neighborhoods like Flushing and Corona offer proximity to transport and strong fundamentals, while wealthier neighborhoods like Forest Hills and Kew Gardens are offering good cap rates, panelists said.
“The difference with a place like Flushing is people live, work and play all in the same community,” said David Schectman, a senior executive managing director at Meridian Capital. “When you leave Flushing and go to Corona, obviously there’s restrictions because of the zoning on height. I think Corona is one of the most underserved neighborhoods there is. ... I think that there's still a ton of exploring to do in Queens.”
Although rent growth spiked this summer across all five boroughs and has since cooled across other boroughs, Queens rents remain elevated.
In August, Manhattan rents broke records as they soared by 28% year-over-year, while Queens rents rose by almost 14%. But more recently, rent growth in Queens outpaced Manhattan, where rents grew by 5.7% year-over-year in February, while rents in Queens grew 12%, according to Douglas Elliman.
Experts onstage at Bisnow’s event said some of the borough’s rent growth is being fueled by Brooklyn renters migrating north in search of a lower cost of living.
“We've been working very closely with our brokers. I think there's people that are shifting from Brooklyn that are being priced out,” said Tristian Last, managing director at Arch Cos. “I think there are young professionals that are coming who are new to the city that are always going to be interested in that.”
Those former Brooklynites and higher mortgage rates keeping would-be homebuyers in the rental market are combining to keep fueling rent growth of almost 24% in August and 18% in February, data from the Elliman report shows.
“I call it the Brooklyn spillover,” Miller Samuels President Jonathan Miller said in an interview last week. “It’s making a tight rental market even tighter.”
Innovation QNS and Hallets North could bring thousands of new apartments to the area, including 1,786 affordable units, but it will be several years before they are ready for renters to move into — and in the meantime, there are still too few units for too many renters.
The borough’s long-term track record of low approvals for new developments is another factor adding to headaches for renters and rent growth for developers. Since 2010, the only borough with a slower pace of adding housing than Queens was Staten Island, reports from the New York Housing Conference, the New York City Department of Planning and the NYU Furman Center show. Between 2010 and 2020, Queens added a total of 4,419 affordable apartments to developments with four or more units.
High prices for land and development sites could constrict developers’ ability to provide more housing, said Sergey Rybak, founder and principal at Rybak Development.
“If you’re buying in a Harlem or a Brooklyn or a Queens area, we can’t make rentals work for over $100 a foot,” he said. “So you must either get an acquisition for $100 or less, or you must develop value within a property — whether it's through a ULURP process or whether it's a JV with an owner.”
Meanwhile, political opposition to housing developments and the tight financing environment could also pose a serious threat to the borough’s growth.
“The large projects, they’re all going to be hamstrung by two things. Debt is like a frat party: no liquidity, no party,” Schechtman said. “Without the liquidity from the lenders and with continued draconian, demonic legislation from our absolutely misguided city council, I think large projects that are not already underway are not going to get off the ground.”
As in other boroughs, a lack of replacement for the 421-a tax exemption will hurt affordability in Queens, Steiker-Epstein said.
“With live-work-play, middle-class workers are a huge part of that,” he said. “If you don’t have affordable housing, it becomes more challenging.”