New York, NY, January 31, 2019 – The Long Island office and industrial markets, which concluded 2018 preserving moderate market performance and strong demand, are poised for another solid year, according to Cushman & Wakefield. The real estate market is benefiting from the region’s healthy economic conditions, which are expected to continue at least through the first half of 2019. At 3.5%, Long Island unemployment has not been this low since the third quarter of 2007—20 bps lower than the national rate.
“We anticipate further stability in the Long Island office and industrial markets,” said Jason Price, Cushman & Wakefield’s Research Director, Tri-State Suburbs. He did note, however, that the Federal Reserve’s fourth rate increase and recent stock market instabilities could contribute to potentially slower demand and a shift in some corporations’ outlooks.
LONG ISLAND – OFFICE
Office demand throughout Nassau and Suffolk counties vacillated during the year. The fourth quarter recorded 267,354 square feet (sf) of new leasing activity—a 33.2% increase quarter-over-quarter. Yet the increase was not strong enough to propel the 2018 annual total of 999,467 sf above the 2017 year-end total, falling short by 354,476 sf. The last time annual office leasing volume did not surpass 1.0 msf was in 2009.
Overall vacancy dropped 160 basis points (bps) from one year ago, with Long Island recording its first quarterly increase since the beginning 2018, finishing the year at 10.7%. The recent uptick was attributed to large blocks of Class A product coming online in the Western Nassau and Western Suffolk County submarkets. Combined, these availabilities accounted for more than 949,000 sf, pushing Class A availabilities 5% higher than at the close of the third quarter.
Asking rents decreased $0.53 per square foot (psf) in the fourth quarter to $29.22. This 1.8% year-over-year decline marks the third consecutive quarter of falling overall asking rents—the most significant annual decline since 2014. Jason Price noted that the Western Suffolk submarket posted the largest quarterly increase among submarkets, edging up $2.44 psf to $28.65 psf as some notable higher-priced spaces returned to the marketplace. However, the most significant quarterly rate decrease took place in Eastern Nassau, where rents fell by $3.15 psf, mainly due to pricing alterations by landlords of Class A product.
Long Island concluded the fourth quarter of 2018 with negative 99,580 sf of annual net absorption, marking the first quarter of net occupancy losses since the beginning of the year. While Western Nassau and Western Suffolk logged the highest leasing totals, they also were the only two submarkets which posted absorption losses during the fourth quarter—mainly resulting from dispositions of a few large blocks of Class A space.
LONG ISLAND – INDUSTRIAL
Strong demand coupled with low supply levels and robust sales drove the 2018 Long Island industrial market. More than 2.5 million square feet (msf) of new deals were signed throughout the year, making total leasing reach 7.4% higher than 2017. The overall vacancy rate remained stable at 5.6% year-over-year, and although the rate ticked 50 bps higher than the third quarter, it remained well below its 8.9% historical average.
New industrial product coming to market is helping satisfy demand. “Existing local and neighboring outer borough tenants may find more options for modern space that will accommodate their business needs in Long Island,” Price said. “More than 600,000 sf of industrial projects are under development, with 1.4 msf of new construction expected to deliver over the next 12 months.”
Price also noted that while all industrial submarkets throughout Nassau County fell shy of their 2017 annual leasing totals, Suffolk County leasing surged, helping drive overall Long Island transactional volume to its highest level since 2015. Central Suffolk was the most active submarket for the year, recording 824,012 sf of new transactions, accounting for 32.5% of the total.
Western Suffolk recorded the largest fourth quarter transaction, as Oil Depot signed a 93,490-sf lease at 263 Merritt Avenue in Wyandanch. However, occupancy losses during the fourth quarter pushed absorption further in to the red as dispositions outpaced robust leasing totals, due in part to several 50,000+ sf availabilities across Suffolk County coming online.
Warehouse/distribution asking rents registered a 16.2% year-over-year increase to $10.61 psf, fueling a double digit overall industrial rental rate growth of 16.4%. Long Island concluded the year at $10.99 psf. Several higher-priced availabilities in Eastern Nassau pushed asking rents higher, as the average rent increased 22.8% to $12.61 psf—the highest Long Island asking rent.
Investment activity for industrial product continued its brisk pace, up 639,000 sf quarter-over-quarter, and spiked 47.1% since 2017. This significant increase was propelled by the $54.5 million sale of the 530,000-sf Newsday site at 235 Pinelawn Road in Melville. At nearly 1.4 msf, total sales volume slowed moderately from year-end 2017, but high demand and lack of inventory continued to create competition.
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