It is first important to examine the advantages for Amazon to choose New York before delving into its effect on investment. Given the incentives Governor Cuomo and Mayor Bill de Blasio offered Amazon, it is clear why the company decided to select the city. For instance, according to Amazon’s blog “dayone,” the company will receive performance-based direct incentives of $1.525 billion based on its creation of jobs in Long Island City. These include a refundable tax credit through New York State’s Excelsior Program of up to $1.2 billion and a cash grant from Empire State Development of $325 million based on the square footage of buildings occupied in the next 10 years. Amazon will receive these incentives over the next decade based on the incremental jobs it creates each year and as it reaches building occupancy targets.
In return for these tax breaks, the company has agreed to donate space on its campus for both a tech startup incubator and for use by artists and industrial businesses. Moreover, Amazon will donate a site for a new primary or intermediary public school, as well as invest in infrastructure improvements and new green spaces. Ultimately, Amazon’s arrival to New York City will both bolster the area’s investment and spur economic opportunity, facilitating a business climate that is more attractive to other companies and the industries of tomorrow.
One of the most significant effects of the new Amazon construction is the forecasted investment opportunity in the regional real estate market. Heading into the traditionally slow winter season, condominium sales in the Queens area had slumped. After the news broke of Amazon’s decision, however, housing prices began to soar. Through an investigation of asking prices, The New York Times reports that the Amazon deal has boosted buyer confidence, citing how one overseas buyer was willing to bid $2 million for a one-bedroom studio apartment without even seeing it.
Further, Jonathan Miller of Miller Samuel, a New York City based real estate appraiser, believes that rent and home prices will grow by 5 to 10 percent overall, while condominium pricing specifically may face upwards of 15 percent in growth. With the continuation of this trend, Long Island City may be poised to become the next Silicon Valley in the coming decade. Interestingly enough, not long ago, the area seemed in danger of becoming overdeveloped. That same building boom may now become its saving grace. Since Amazon announced its decision, 6,000 new rentals are in the pipeline to come on the market over the next three years, which will certainly be needed with the 25,000 employees estimated to be commuting through the area.
Even with the increased construction in Long Island City, the neighborhoods adjacent to it will need to absorb some of the new residents to accommodate the incoming workforce. The surrounding Queens neighborhoods of Astoria and Sunnyside, middle-class enclaves of single- and multi-family brick and row homes, have already been rapidly gentrifying in recent years. Trendy Brooklyn neighborhoods such as Williamsburg are also nearby, along with the chic Upper East Side of Manhattan, which sits just across the river. Each of these communities will be affected, their real estate markedly increasing in value.
As property values continually rise, there has been an influx of investors arriving to the area hoping to take advantage of the Amazon situation. In fact, The Wall Street Journal reports that search volume for residential units in the area spiked more than 400 percent in the first few days of Amazon’s announcement. While this number did taper off following the decision, it remains at a steady 295 percent, still incredibly high compared to the previous activity in the local housing market. This further indicates the strength of buyers and their increasing willingness to pay premium New York housing costs for a piece of the investment action.
If undertaken, this significant property investment by buyers will not go unrewarded. With housing prices projected to continue their ascent, buyers can easily earn back their investment through the upswing in rental prices. StreetEasy cites how hopes for future growth in the Long Island City area have already buoyed condo sales in the Harrison, a newly developing luxury condominium building, where roughly 35 percent of units sold were listed for rent shortly after their sale. As a similar situation occurs in buildings across the area, in the long run, property values could potentially rise enough to make buyers millionaires.
Moreover, if buyers cannot afford direct investment in the expensive Queens area, they can even gain solid returns from properties as far as New Jersey. Although it is difficult to commute from North Jersey to Long Island City, the expansive public transit network allows commuters to get to the city in around an hour. The more affordable housing costs of North Jersey are quite enticing to Amazon employees looking for single-family homes in the suburbs. With median home prices likely to rise in conjunction with buyer demand, townhouses and condominiums in North Jersey will become lucrative investments that allow buyers to partake in the Amazon Effect.
Regardless of proximity to Long Island City, Amazon’s pending arrival should make renters consider homeownership. Prices are substantially increasing in the housing market, but mortgage rates still remain low and lenders do offer a range of low down payment products. As property values continue to rise, homeowners will be able to tap into their growing home equity and could have attractive refinancing options at their disposal. Moreover, they could rent out their property through a site such as Airbnb when away from home or to local tenants for a return on their investment, and the booming state of the area due to Amazon ensures a constant supply of these renters. As the Queens area recovers from its mild housing dip, it is evident that now is the time to make a long-term property investment.
Ultimately, Amazon’s decision to build a massive campus in New York City is one of the largest economic development initiatives for the city in the past decade. The company brings large private sector growth to the area and has promised to create up to 40,000 high-skilled jobs within the next decade. In addition, Amazon’s HQ2 is likely to lure other companies, from established competitors such as Google to burgeoning startups, generating additional growth for the area in the near future. This unprecedented growth has already trickled down into the housing market and construction for the headquarters hasn’t even started yet. If the sudden spike in property prices is any indicator for the future of the city, it is clear that New York City may well be on its way to becoming the next Silicon Valley.