Developers and investors looking to cash-in on soaring values in urban centers have a very big bullseye to shoot at – transit stations.
Transit stops for subway, light rail, commuter rail and bus are on the short list of location criteria for both residents and commercial tenants as urban populations – and transit ridership – continues to climb. Over the past two decades, public transit trips have risen by 34% with Americans logging 28.5 million trips each day, according to the American Public Transportation Association (APTA). It is no secret that real estate around those transit hubs is in high demand. According to APTA, residential property values performed 42% better on average if they were located near public transportation stops that provide high-frequency service.
Value of Proximity to Transit
Proximity to transit is an important factor when choosing an apartment in major metros across the country from Boston to San Francisco. People want the convenience of a short 5- or 10-minute walk to the subway or train station, and they are willing to pay a premium for those locations. A new research study by RentHop calculated median rent of apartments within different proximities of subway entrances in neighborhoods and boroughs across New York City.
Property owners often think that they must be as close as possible to transit stops to reap the biggest benefit. However, the RentHop study found that proximity to transit stops can help to boost apartment rents for properties that are located even one-eighth to one-fourth of a mile away. Some of the key takeaways from the study include:
- Brooklyn, Manhattan, and Queens: Rent prices aligned with the borough median when about 1/4-mile from the nearest subway. Properties closer than 1/4-mile command a premium, while rents start to drop below the median for properties located further than 1/4-mile away.
- Apartment rents located closest to a subway are typically 6-8% higher than the borough median, while those further away rent for 8-10% less.
- For most neighborhoods, the most expensive areas were those no more than 1/8-mile to the subway. However, apartments closest to the subway in some places, such as the Bronx, were cheaper – likely because of the subway noise.
- In Manhattan, rents also were cheaper about 1/3-mile away from subway stops, probably due to the local geography that puts those properties by the waterfront.
How Investors Get Ahead
The challenge for investors is getting a foot in the door and acquiring properties near established transit hubs. Core assets in those prime locations typically sell for top dollar. In some metros, investors can still find those diamond in the rough opportunities related to value-add or opportunistic properties, such as converting a warehouse or office building into luxury apartments or lofts. However, higher property values have already priced many investors out of those established transit corridors.
That trend is forcing investors to cast a wider net. In the New York City metro, for example, rising housing costs are pushing renters further out into New York and New Jersey in search of more affordable housing options that are still within an easy commute of the city. Strong renter demand is heating up the apartment investment market in areas such as Hudson County, which is directly across the Hudson River from Manhattan, as well as Bergen County in Northern New Jersey and Middlesex County in Central New Jersey. In Chatham, N.J., for example, investors are willing to pay cap rates below 5% for properties in walking distance of the New Jersey Transit train station.
Another strategy for investors is to get ahead of proposed transit projects before property values start to climb. According to the Washington Post, voters in the November 2016 election approved more than $170 billion in funding measures for improving and expanding local and state public transit projects. According to Curbed, some of the top projects in 2018 include:
- Charlotte’s $1.1 billion light rail extension is set to open this spring.
- In Denver, the 11-mile G Line will connect downtown’s Union Station to the city’s northwestern suburbs. The G Line is expected to open by year-end.
- Fort Worth’s new 27-mile TEXRail also is scheduled to open at the end of 2018. The commuter rail line will connect downtown Fort Worth to Grapevine and the Dallas-Fort Worth Airport.
- The new CTrail Hartford Line is under construction. The project will expand rail service between New Haven, Conn. and Springfield, Mass. and it will add new stations at Wallingford, Meriden and Berlin.
There is plenty of research that supports the value proposition for owning property near busy transit hubs. Certainly, developers do need to dig into the details on the demographics and traffic patterns to see if a particular location is a good fit for a specific use. For example, an apartment project will have a very different value proposition than a coffee shop. But the first step is to identify viable acquisition opportunities.
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