Investment, Retail

New York Developers Look to Hotels and Move Away from Retail

Within the borders of America, real estate investors face a huge variety in local cultures. In Miami Dade County, the municipality is partnering with developers to build on-campus residencies for teachers to help close the growing affordability gap.

New York, developers are doing the exact opposite. In one of the only markets that are somehow more expensive than Miami, developers are moving away from retail and into hotels as a response to increasingly unaffordable housing.

The Difference in Culture

Part of the difference in culture between New York and Miami is the way that each location gets its money. Both are huge hubs for international investment, but those investors come from vastly different sources. Miami is a center of investment for rich people in poor Latin American and South American countries. In most cases, those investors do not want to live in Miami; they are simply trying to avoid the political uncertainty in their own countries. Venture firms focusing on luxury properties actually require that investors do not live in the units they are investing in.

12 E 69th St, New York, NY 10021

New York is a completely different story. As one of the two or three top international centers for culture and finance, investors often take a residence in New York as part of a sprawling network of properties. As such, they are much more invested in the communities around them. Why then, would say look away from building retail properties and focus on hotels? Because their “community” is not the average New Yorker. They are trying to appeal to other international travelers who may not have the money to purchase a unit in New York.

Average price to buy an apartment in

  • New York City – US $1,253.25 per square foot
  • AMiami – US $410.39 per square foot

Hotel Developments Keeping the Boroughs Alive

Gentrification is a huge topic in places like Brooklyn. The average rent in neighborhoods near the Barclays Center are higher than the luxury Brooklyn addresses of a decade ago. This is great news for investors in the market – Not such great news for the poor residence who need federal jobs and rent control in order to remain in their neighborhoods.

Average price to

  • buy an apartment in Brooklyn city center – US $1,146.99 per square foot
  • rent an apartment in Brooklyn city center – US $4,478.95 per square foot
56 Leonard St, New York, NY 10013

The cheapest price for rent in the Bedford Avenue district was around US $200 per square foot as of a year ago. Lower-priced units tend to fly off the market, so they really do not help the average New Yorker in terms of maintaining a residence in the area. Cobble Hill is slightly better at a range of US $78 to US $94 per square foot. Around the Barclays, rents range from US $78 to US $125 per square foot, which is up around seven percent from the previous summer.

These prices are quite cheap when compared to Manhattan (approx. US $711 to $800 per square foot), but it is still expensive when placed against the average salary of a New Yorker (US $3,053 per month).

Developers in New York are Following the Numbers

It is easy to see that developers who are focusing on New York are simply following the numbers. If Miami is a leading indicator, New York is soon to lose many of its lower-middle-class residents to the housing affordability gap. The luxury market continues to push up rents across the entire city, but wages for lower-middle-class and middle-class professions remain stagnant in the area. In this way, New York may end up like Miami – a city specifically geared towards international investors and tourists.

If this is the case, then developers are correct to look forward into space where the average New Yorker will be a traveler or vacationer. The other two groups that populate the city, old money and young hippie, do not really concerned developers. They either have their location completely set up (all money), or they are simply willing to take anything they can afford (young hippie).

Retail is going the way of Toys R Us, while hotel space is going the way of Amazon. International investors are well advised to look into the hotel space rather than retail when it comes to New York. The amount of money that is moving from retail into commercial from places like CBRE is creating a trend. This trend will be very difficult to reverse.

 

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David Farron is the Co-Founder and CEO of InternationalRealEstate.News. A seasoned data analyst, he is an expert in international financial markets and has managed sizable budgets for a myriad of programs, including for UBS and Bloomberg. As an entrepreneur, his vision is to create a multidisciplinary platform that optimizes the best of technological applications and human talent to the benefit of the international real estate market.

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