Transit has the potential to drastically change the landscape of real estate. But in an already saturated market like New York, we wanted to explore just how much prices would be affected by a change in accessibility. As it turns out, even markets like New York can be deeply changed by just 3 subway stops.
The Q Line Extension
The Second Avenue Subway is an extension of the Q Line, which continues service from 57th Street and 7th Ave. to 63rd and Lexington and makes its debut on Second Avenue on 72nd St., 86th St. and 96th St., which is all serviceable by brand new subway stations. This extension only represents Phase I of the project, with three additional phases to proceed in the future – though currently unforeseeable due to budget issues.
When looking at how transit traditionally effects the commercial property values in the surrounding area, values typically rise. The Upper East Side was an area with limited public transit accessibility compared to other areas in Manhattan, with overcrowding on the 4, 5, and 6 trains being the highest in the city. Before the opening of the new Q Line extension, during morning rush hour, there was an average of 133 riders per downtown train left stranded on the platform at the 77th street station – as many as 506 passengers have been left stranded by a single train at 77th Street. The expansion of the Q was meant to lessen the load of the 4, 5, and 6 trains as well as provide more accessibility to the residents further east on the Upper East Side.
Impact of Q Line Growth for CRE
Analyzing Reonomy data, we wanted to determine how this expansion has affected the surrounding property values since its announcement and opening. If we look at the total number of sales in the area from 72nd St to 96th St along 1st, 2nd and 3rd avenue, we can see that, since the opening of the Second Avenue Subway, there is a steady increase in the average and median sales amount. Not only did sales increase along with the opening of the line, the valuation of the entire area increased exponentially.
While 3rd avenue was already fairly accessible from public transit due to the 4-5-6, the expansion of the Q line will most certainly make the commuting options easier and the area more accessible in general. Accessibility tends to encourage more businesses, people and shops to flock to an area. Walkability is one of the largest factors for people living in New York City. Increasing the walkability of an area directly increases the value of the businesses, and therefore, the real estate within it.
While the subway may expand, it’s important to also make people want to go there. While a large population of people already live in the area that is most affected by the new subway stops, much of what was previously inaccessible for commuters is opening itself up for potential development, and encouraging non-residents to frequent the area.
But, in New York, a subway doesn’t make or break an area. The Lower East Side has been fairly inaccessible by transit for a long time. People still decide to live and work there, and bars, restaurants and shops have changed the area to adapt to the young people that moved there.
Younger residents have been moving to the Upper East Side over the last few years because it has more affordable housing than many other neighborhoods in Manhattan. The retail space has been responding to that, as well as multifamily.
The increased accessibility can only do more to increase the value of the area, however. While it’s clear that real estate prices are quickly rising and the subway is already bringing a renewed interest in the neighborhood, it remains to be seen just how much the area will change.
The Second Avenue Subway has been part of the city’s transit plans since the 1920s. An attempt to begin construction was abandoned due to the financial crisis of the 1970s and only a few tunnel segments were built. Over the years, plans were scaled down, and its length was trimmed to only three stops on the Upper East Side.
When ground broke in 2007, Phase One was scheduled to open and operate by the end of 2013. In 2011, that deadline was pushed back to 2016. The Q line extension ended up opening in January 2017. In the year and a half since opening, there has been more of a decrease in property sales and investments. Though part of the proposed plan brings the subway to upper Manhattan, the prospect for future phases remains unknown because of budgetary issues.
The initial spike in the price of sales began in 2011 – and continued to grow through the opening of the project. The spike in the sheer number of investments also occurred around the expected opening of the subway. This investment increase helps to create context around the decline of sales in the past year and a half.
From 2011-2016, median rent surrounding Second Avenue appreciated by 27 percent – almost double that of Third Avenue (14 percent) and significantly more than First Avenue (19 percent). According to research by StreetEasy, this acceleration in rent appreciation is closing the price gap between all three avenues. Third Avenue is still the most expensive, with a median rent of $2,873 as of 2017, but First Avenue ($2,554) and Second Avenue ($2,520) are not far behind.
Rent appreciation for renters surrounding the new 72nd Street station and the 96th Street station could be subjected to an increase of $462 per month, based on a commute time decrease of 14 minutes to Midtown Manhattan. Those near the 86th Street station may have had a median rent increase of $330 per month, corresponding with a 10-minute decrease in commute time.
In terms of commercial sales, we reviewed Reonomy data to see if the building sales correspond with the rent rise, and found that there has been a distinct increase in property values within the 3 avenue radius.
Around the expected opening in 2011, prices began to rise. Since 2011, there has been a 185% increase in Median Sales amount for Multifamily properties. For the 10 years prior, median sales amount stayed nearly the same – around 3.3M. Over the past 3 years, that median has jumped to around 10M.
Mixed Use and Retail saw a similar jump in median sales amount. While the number of overall sales did not follow the same upward trend, the sales amount did. After a huge initial spike in sales amount in 2014, the median sales amount has stayed far above where it had been in the past. There was a 346% increase in median sale amount from 2011 compared to sales in 2015.
Looking to find properties in the next up and coming area? Utilize Reonomy to identify markets of interest and prospect for your next high return investment.