New transit lines and centers are typically constructed in densely populated areas, where residential and employee populations are both demanding. Investment in transit projects are made to adjust for continued growth and mitigate issues that are found in high-density areas – pollution, traffic congestion, long commutes and poor walkability. But what effect do they have on the commercial real estate industry?
Transit Development Expanding CBDs
In order to improve walkability and livability of a dense downtown area, as well as expand the livable walkable area, many downtowns are relying on public transportation of metro and light rail. Not only can the expansion of the downtown through rail allows for growth of a city outward, but also for investors to develop new commercial spaces in what was previously inaccessible. Whether through a lack of parking or located in an area where people do not shop or walk around, access to transit has the ability to transform an area.
Investors also have the potential to increase the value of their assets in an area with public transit access. As more mixed use, multifamily and office buildings enter an area, the desirability of the area grows, as does cost of living. People want to live where they can access amenities they like, whether that be shopping, dining, or walking to work.
How far is too far?
Ridership of public transport falls greatly after a ¼ mile distance from a commuter’s work or home. Transit riders are unlikely to want to walk a distance that is further than a few blocks, and ridership falls greatly the further the rider must walk to the station, though the walkable distance tends to be a bit further for residential than it is for office locations.
In terms of pricing and sale changes, vacant and industrial land in the vicinity of these projects tends to lead to land use change. This is especially evident in working class neighborhoods with higher population densities, allowing for additional movement into the area and an increase of higher income developments.
Vacant and industrial land are the most likely to experience land use change, especially in working class, mixed land use neighborhoods with higher population densities. The effect of Light Rail or LRT on land use change is limited in high income neighborhoods, according to a study conducted by the Public Policy Institute of California. The transitional neighborhoods offer the most opportunity for investment growth.
The price of property in relation to the distance to CBD is an inverse relationship – the closer you get to the CBD, the higher the cost of housing.
Multifamily and Office Investment Benefits
If the transit centers are put in place to increase the variable area of the central business district of a city, there is a higher likelihood that general real estate prices will follow. The ability to increase general pricing structure over time is a huge benefit for increasing transit lines. Not only will you have more developable area, that area can exist with higher density and offer more revenue – increasing the value of the area over time.
Transportation costs can also be factored into an increase in multifamily housing prices. Residents purchase cars when the cost of using public transit is greater than the time and fixed costs of using public transit. Light rail investments provide incentives for residents to move near stations based on savings in transportation costs. Increase in demand near housing near light rail causes housing prices to increase until the price per square foot exactly matches the savings from lower transportation costs.
While residential properties may actually offer lower value for properties directly next to and above light rail due to noise, this may not decrease value for commercial properties. These price differences also depend on the type of rail service offered, and how that affects the potential values for all tenants.
Washington D.C. Silver Line
The expansion of Metro’s Silver Line is an attractive feature, and certainly a contributing factor to the popularity, of the Tysons area. But despite all the new buildings and construction, there hasn’t been a significant impact on the micro-level Tysons real estate market — yet.
However, many of the areas surrounding the Tysons corridor have seen a noticeable effect on their individual markets, with the entire surrounding area of the Silver Line growth into Northern Virginia seeing a steady increase in property values.
Not only have the commercial properties in Northern Virginia increased in value, the number of office and multifamily property sales developments have steadily increased.
LA purple line extension:
From Koreatown to Downtown LA / Union Station
The Westside Purple Line Extension is a $6.3 billion, 9-mile, 7 stop extension of the Metro Purple Line that is planned to connect from the existing station at Wilshire/Western westward through the Wilshire Boulevard Miracle Mile District, Beverly Hills, Century City and into Westwood. The famously car-centric city of Los Angeles has gotten a jolt from its 6.6-mile Expo Line extension, which opened in 2016, connecting downtown L.A. to the beach town of Santa Monica for the first time by rail.
L.A. neighborhoods along the route like Jefferson Park and West Adams are already beginning to see residential property prices rise as a result, though the expansion is under construction. For example, annual median prices shot up 14.6% in May in West Adams, according to realtor.com data. Median prices in Palms, the first new stop on the line’s extension, went up 8.4% in May compared to 2016. A further boost seems likely as in 2019, the Expo line is expected to link up with the Crenshaw Line—and a stop near the Los Angeles International Airport.
Does Light Rail stimulate the same amount of development as a Metro expansion?
While it may increase the value of the homes and residences that are there, Light Rail does not always stimulate development and growth in the same way that is expected from a metro development. We used Reonomy data to look at some new and opening transit centers around the country, to see how sales and values increased around LRT.
Charlotte Blue Line
The expansion of the Blue Line in Charlotte in March of 2018 was the most expensive public works project in the history of the city with a billion dollar budget. The extension provides 11 new stations, doubling the amount of light rail in the city.
Previously the Lynx line stations have had large park and ride stations. The extension has 4 stops with a park and ride, but 7 more, including the final stop on the extension at the UNCC campus, with no park and ride option. Without a park and ride, the stations are likely accessible from a higher density area, improving walkability, transportation and commuting costs, as well as encouraging alternatives to the suburban car-centric accessibility.
In the half mile radius around transit centers, there has been an overall growth of 86% since project groundbreaking for the median sale price of commercial properties according to Reonomy’s data.
With Charlotte specifically, home prices have been rising very quickly — approximately 27% year-over-year, according to realtor.com data. Property values within a one-mile walk of light rail stations have increased approximately 3.37% more than comparable properties located within a mile from the stations.
Denver G Line
Testing started January 1st 2018, set to open to the public this year.
The G Line, or the Gold Line, brings RTD train service through northwest Denver, Adams County and Arvada with the end-of-line stop in Wheat Ridge. It has long been planned by the near northwest suburbs and Denver, and will provide a rapid transit alternative for travel along the I-70 West Corridor. Once open, the commuter rail G Line will provide a direct route between downtown Denver’s Union Station to Wheat Ridge, passing through north Denver and Arvada.
Commercial sales in these neighborhoods increased exponentially in the year expected to open, but have continuously risen since 2012. Sunnyside has seen a 102% increase in average sale price since the announcement of the project, and a steady increase in number of sales YoY for the past 3 years.
Neighborhoods affected: Sunnyside, Midtown, Olde Town Arvada.
QLINE is a 3.3-mile circulating streetcar along Woodward Avenue between Congress Street and West Grand Boulevard in Detroit, Michigan. The rail was funded as a result of Super Bowl XL, when the need for reliable transit alternatives became more evident, to provide connections to key Detroit destinations within the Downtown, Midtown and New Center areas. It was the first major transit project led and funded by both private businesses, philanthropic organizations, in partnership with local government, the State of Michigan, and U.S. Department of Transportation.
QLINE opened to the public in May of 2017 and connects the city from downtown to North end via two lines. In its first week of operations, QLINE had nearly 50,000 riders, averaging more than 7,140 riders daily. More than $7 billion in new investment has poured into or is planned for 211 development projects on either side of the streetcar’s path since 2013.
What does this mean for CRE investment? We looked at Reonomy’s data and found that there was a 78% increase in median sale price within a half mile of the expected transit centers in the year of groundbreaking. Since opening, sale values continue to be much higher on average than before the transit lines were announced.
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