Can Long Island become the next urban suburbia?
That was the main question posed to industry leaders and top executives from across Long Island and New York City as they gathered last week at the Garden City Hotel for a morning of networking and conversation at Bisnow’s Long Island State of the Market event.
According to panelists, Long Island may become the next urban suburbia – but it’s definitely one of the last. It is well on its way to becoming decidedly less suburban and more urban as new apartment buildings and condominium communities close to mass transit expand into villages and towns, fundamentally altering the structure of the community.
But it has suffered from decades of red tape that have made it difficult to transform neighborhoods.
This market is known for ubiquitous decentralized zoning, permitting and project approval processes, which makes it extremely difficult to move projects forward.
In a series of panels, “Long Island’s Commercial Balancing Act” and “Urban Suburbia: Bringing New Life to Long Island,” attendees learned about the current state of the market, market trends and key demographics impacting real estate on Long Island. Panelists also shared their perspectives on tax reform and their outlook for the real estate market in 2019.
“We see many challenges and opportunities in Long Island real estate,” John Schmuck, CPA and Partner at Margolin, Winer & Evens said as he opened the second panel. “Vacancy rates are down across all markets, lease rates are up, but cost of construction is also up and there are several barriers to entry.”
As cap rates become increasingly more aggressive in New York City and surrounding boroughs, investments in those areas have become more prohibitive and levels of return are shrinking. This shift presents a significant opportunity for those looking to capitalize on the growing demand for more diverse (multi-family) housing options on Long Island.
The real estate market on Long Island is composed of a diverse mix of properties including mixed-use, multifamily, retail, office, senior housing and single-family homes.
Adaptive reuse of properties is a major opportunity in this market. With increasing demand for more multifamily housing options and limited land available for development, the market is experiencing a paradigm shift. The market is saturated with a surplus of structured office and retail space with little tenant interest. These property owners now are looking to transition these office and retail spaces into multifamily residential properties.
As the Baby Boomers continue to age and the number of empty nesters increases, there is a growing shift away from single family homes. Experts said they’re seeing a growing demand for more multifamily properties as Baby Boomers look to downsize to a low maintenance 55 and older community that presents an easier way of living and offers highly sought-after amenities.
Similarly, there is a need to attract and retain the growing millennial population to Long Island. Experts say this market is well-positioned to attract the interest of Millennials, many of whom are looking to capitalize on lower rents, more amenities and a more holistic work-life balance living experience – something that New York City cannot offer.
The benefits of multifamily developments are far reaching and impactful on the communities in which they are built. These properties contribute more tax dollars to the town or village than a single-family home and those benefits directly impact the economic development of the area as well as the school system.
The Local Industrial Development Association (IDA) is a vital part of each deal, as it plays an essential role in securing tax abatements for development projects.
As for the impact of tax reform on real estate, panelists agreed the true impact remains to be seen. Schmuck said it is critical to keep a close eye on the specifics. “The devil is in the details. Each scenario is different. But at this point the majority of real estate professionals are not seeing an impact of the new tax law on their business, deals or the market.” The real estate professionals have also not seen an impact on Long Island home sales in regards to the new limitation in deducting state and local taxes on their tax returns.
Going into 2019, a majority of the panelists agreed the outlook for the Long Island market will remain strong and stable. Rising rates and a shortage of multifamily properties pose the biggest threat to the market. However, rezoning and development of existing properties into multifamily developments is a trend that’s here to stay.