Market drivers shaping the exponential growth of Harlem in the next decade - by Victor Sozio

Victor Sozio, Ariel Property Advisors

Over the last decade, Harlem has received its fair share of recognition as a rapidly transforming area. The steady appreciation in property values and continued gentrification of the area has attracted the attention of investors, retailers and developers alike. While it may be true that the area is a more price-conscious alternative with greater upside than areas of Manhattan below 96^th St., the real source for growth comes from the in-place fundamentals - transportation, retail hubs and a vibrant culture.

River to river, an unprecedented number of projects are set to propel Harlem both immediately and for decades to come. Let’s take a look at several initiatives poised to make the largest impact. 

East Harlem’s multifamily market outpaced the rest of Northern Manhattan in the first quarter of 2016 in terms of dollar volume at $231.012 million and total units traded which reached 1,252, according to Ariel Property Advisors’ “Multifamily Quarter in Review: 1Q16.” This eruption of activity is a trend that looks to continue as investors learn more about the slated 2^nd Ave. subway expansion and the planned re-zoning. 

2^nd Ave. Subway

A New York state budget deal was reached earlier this year to restore nearly $1 billion to pay for extending the Second Ave. Subway to East Harlem. Upon completion of the first phase of the plan, scheduled for December 2016, Q service will run along Second Avenue with new stations at East 72^nd, East 86^th and East 96^th Sts. We expect the new 96^th St. station to positively impact properties up to East 106^th St. Phase 2 will offer an extension even further north from 96th to 125^th St. If all goes to plan with refurbishing existing underground tunnels, Phase 2 could open in the mid-2020s. This much needed addition to East Harlem’s transportation infrastructure will alleviate investor concerns in areas east of 2^nd Ave. being too distant from transportation.

East Harlem Rezoning

East Harlem is one of the seven neighborhoods considered for rezoning under mayor de Blasio’s plan. That process took a major next step forward in February with the release of The East Harlem Neighborhood Plan, a community-driven set of recommendations that was recently presented to the city council. The current plan calls for major upzonings along First, Second and Third Aves., as well as around major transportation hubs and east-west corridors.  Successful implementation, which most predict will occur some time after the summer of 2017, could transform one of Manhattan’s most underdeveloped areas and deliver badly needed housing stock.

Central Harlem is another area which continues to thrive, in large part due to 125^th St.’s emergence as a premier retail hub. Asking retail rents along 125^th St. have reached an average of approximately $110 per s/f, exceeding all other uptown retail corridors. The increased presence from high-profile retail tenants, as well as an uptick in office leasing highlights the continued upside potential of this corridor and its surrounding areas.

125^th St. Retail Boom: Whole Foods, Bed Bath & Beyond and TJ Maxx

A new Whole Foods will open in late 2016 or early 2017 at 100 West 125^th St., and may set off a “Whole Foods effect” that has played a major role in increasing property values in other maturing neighborhoods across the country, such as Logan Circle, Washington, D.C. and  South Hills, Pittsburgh.

Clothing chain TJ Maxx recently signed on to be the anchor tenant at the mixed-use development at 5 West 125^th St. The company has signed a 10-year lease for 20,000 s/f at the planned 130,000 s/f building, which is wrapping up construction. The entire second floor will be occupied by Bed Bath & Beyond while the entire 3^rd floor will be occupied by WeWork, both which confirmed their Harlem arrival in 2014 when the project was announced. The six-story property will also contain 30 residential rental units on the upper floors.

Other retailers who have established a recent presence on 125^th St. include American Eagle Outfitters, Burlington Coat Factory, Raymour & Flannigan, and Banana Republic.

Manhattanville/Morningside Heights is experiencing a renaissance due to Columbia University’s expansion plan in the neighborhood.

Columbia Expansion

The 17-acre expansion plan, first announced in 2003, will soon see its first buildings open this year.

Columbia University committed more than $150 million to reinvigorate West Harlem with funds going to affordable housing, University services and amenities for the neighborhood and other benefits. 

Upon completion, the expansion will provide “publicly accessible green space, widened tree-lined sidewalks, retail stores, and restaurants that welcome the entire community to share,” according to the university.

Several recent closings illustrate the strong pricing metrics in the area as a result of the expansion. In January, Thor Equities purchased three adjacent rental buildings near Columbia University’s expansion for $34.4 million at 556 W 126^th St., 560-562 W 126^th St. and 3210 Broadway. The properties span a combined 52,000 s/f, and closed for north of $660 per s/f. One block over, the property at 567-569 West 125^th St. sold for $11.595 million which translates to $534 per s/f.

The sustained and exponential growth witnessed in the last decade of Harlem’s history makes it unjust to categorize the area as an “emerging market.” As the large scale developments and public initiatives continue to add essential components to an already thriving community, it becomes easier to envision Harlem continuing to mature as one of the city’s most unique and sought-after locations.

Victor Sozio is an executive vice president at Ariel Property Advisors, New York, N.Y.