New York, NY, October 16, 2018 – On Long Island, the office leasing market continued at a moderate pace, and third quarter office activity lowered the market’s vacancy rate to a new historic low of 10.5%. The industrial market continues to remain strong showing healthy demand with leasing up 31.0% year-over-year, and investment sales activity nearly doubling since the close of the second quarter.
As steady economic fundamentals continue, the Long Island market is poised to strengthen through year-end. Employment has steadily grown throughout 2018, with the third quarter maintaining the trend. Unemployment reached its lowest rate since the third quarter of 2007 prior to the recession, diminishing to 3.9%—matching the U.S. rate.
Leasing activity for the market slowed this quarter, totaling just above 200,000 square feet (sf). The Central Nassau submarket produced the highest leasing totals at 81,073 sf, and now accounts for 38.0% of year-to-date volume. The largest office leasing transaction for the third quarter took place in the Central Nassau submarket at 900 Merchants Concourse in Westbury for 14,691 square feet. Despite the slower leasing velocity, absorption totals for the Long Island market finished the quarter with 432,891 sf, which is up substantially compared to the third quarter of 2017. The largest office sale this quarter was Lalezarian Properties’ purchase of 114 Old Country Road in Mineola totaling 114,356 square feet.
“Healthy employment and market fundamentals should endure allowing 2018 to finish with strong leasing activity,” said David Pennetta, Cushman & Wakefield. “We also anticipate vacancy rates to remain at historical lows, due to a limited supply yet clear demand for Class A office space.”
The vacancy rate for the market dipped for the third consecutive quarter to a new historic low of 10.5%. Alterations in this quarter’s vacancy rate were derived from the lack of direct availabilities in Class A and B assets in the Western Nassau County submarket.
Long Island’s overall asking rents remained relatively stable, slightly decreasing $0.18 per square foot (psf) to $29.78. In comparison with the previous quarter, the demand for sublease space was strong, helping raise overall sublease rental rates in every submarket across Long Island. The Western Nassau submarket recorded the most substantial quarterly asking rents at $33.87 psf, while Western Suffolk finished the third quarter slightly down at $26.21 psf.
Industrial leasing activity remained strong this quarter totaling 567,655 sf – a clear indication of the prolonged growth throughout Long Island’s industrial sector, as this is the fifth consecutive quarter in which demand surpassed 550,000 sf. Leasing activity is up 31.0% year-over-year, yielding 1.8 million square feet (msf), and the sector is on pace to meet or exceed the 2017 total. Leasing velocity was fueled by activity in the Eastern Suffolk submarket which consisted of 25.6% of the island’s total volume with 145,496 sf leased.
Vacancy rates held steady, up only 10 bps to 5.1%, remaining near the market’s historic low. All submarkets other than Western Nassau County recorded yearly declining vacancy rates. Western Nassau’s rate sharply increased to 6.5%, partially attributed to more than 422,000 square feet (sf) of mid-sized space becoming available during the quarter. Due to consistent demand in Western Suffolk County, shrinking availabilities pushed the vacancy rate lower to 2.9%—the most substantial vacancy drop amongst all submarkets.
“Demand is high on Long Island, and to attract current users in the market, developers are compensating for a lack of existing supply by constructing facilities on mostly a build-to-suit basis,” noted Pennetta. “Construction totals are now reaching nearly 470,000 square feet.”
Overall asking rents increased 17.0% year-over-year to $10.81 psf while warehouse/distribution rents edged upward by 13.4% during the same period to $10.21 psf. Sale prices on a per-square-foot basis have risen 22.0% to $142.91 year-over-year due to constrained supply.
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