It’s hard to fathom, but on March 6th we mark the 10-year anniversary of the Great Recession’s stock market bottom and the subsequent plunge in New York City’s investment property prices and sales volume. This anniversary is a unique point in time to recognize where the market for New York City development sites stands today, how development has changed in the boroughs since then and how those changes give us a sense of what the city may look like in March of 2029.
Last year ended with most submarkets seeing land prices close to historic highs. For the year, the average price per buildable s/f was just shy of $700 in Manhattan, followed by $261 in Brooklyn, $218 in Northern Manhattan, $211 in Queens and $72 in the Bronx. It’s worth noting, however, that transaction volume for development sites was down significantly from 2014-2015 levels. This apparent disconnect between high pricing and low transaction volume suggests developers are being very selective in what they buy, and that near-term downward pricing pressure may be building.
It is not surprising that land in New York City is more expensive over a 10-year time horizon—especially when the starting point is the worst economic downturn since the Great Depression. Growth rates of land prices in the boroughs, however, give us a better sense of the city’s evolution. Looking at annual land pricing data since 2009, our Investment Research Division learned The Bronx’s 15% average annual growth rate was New York City’s strongest, followed by Northern Manhattan’s 14%, Brooklyn’s 13%, Queens’ 8% and lastly, Manhattan’s 6% growth rate (data is not available for Staten Island due to sample size and predominantly low-density zoning).
The comparatively higher growth rate in Brooklyn, Queens and Northern Manhattan — where today’s peak land values are roughly double 2007 peak levels — can partially be attributed to higher condominium prices and a host of new rental properties achieving record rents. Ten years ago it was a rarity to see a multifamily property outside of Manhattan achieve rents well north of $50 per s/f—today such properties are both more common and are penetrating deeper into the boroughs. Manhattan’s lower growth rate also reflects the fact that the average price per buildable s/f never dropped below $300 during the downturn, giving Manhattan a comparatively higher floor. Likewise, at some point in the future when another downturn occurs, we should expect more expensive, highly amenitized neighborhoods in Brooklyn, Queens and Northern Manhattan to have a higher floor price per buildable s/f.
Affordable housing is as much, if not more, of a challenging dilemma today as it was ten years ago. It certainly didn’t help that construction ceased between 2009 and 2011, limiting available supply when the economy got going again. Only now—more than ten years after being initiated by the Bloomberg administration—are we seeing the full potential of rezoning efforts in Hudson Yards, Downtown Brooklyn, Williamsburg, Long Island City and elsewhere as new towers open their doors on land that used to be occupied by low-density buildings, garages and vacant lots. Yet for most people, it certainly was not any easier to buy a condominium for $600-1000 per s/f in 2009 than it is pay $900-1,500 per s/f today.
As long as urban living remains popular, people desire short commutes, and New York City’s dense economy is comparably the same size of countries as big as Australia, the long-term solution to our affordable housing crisis is finding places to build a lot of housing and to build it higher. Some rent regulation and programs like Mandatory Inclusionary Housing can play a limited role in treating the symptoms of unaffordable housing, but they are not enough to cure the disease of undersupply.
New rezoning initiatives currently underway will shape the New York City of 2029. Manhattan will continue to experience steady growth at the high-end of the market, but over the long term we expect relatively stronger growth in sections of East Harlem, Gowanus, Astoria, Mott Haven, Jamaica, the Jerome-Cromwell section of the Bronx, Inwood, East New York and areas around Northern Boulevard in Long Island City. Perhaps by then there will be chatter identifying Kew Gardens, Bay Ridge or the Williamsbridge section of The Bronx as the next ‘it’ neighborhoods.
With persistence and a bit of luck, today’s experimental combination of massive building efforts, creative zoning incentives and a (hopefully) moderate regulatory framework—along with accompanying economic growth—will change today’s supply-demand dynamics and truly make New York City more affordable for residents in 2029.
Michael Tortorici is an executive vice president and founding member, and Kristen Ostach is an analyst – investment research, at Ariel Property Advisors, New York, N.Y.