Long Island industrial space gets squeezed

Industrial real estate in the tri-state area has a new motto: Go east, young broker.

After a year of record low vacancy rates, Long Island industrial sales prices soared skyward. The industrial vacancy rate is forecasted to wind up around 6 percent for 2006, the eighth lowest of 50 U.S. metropolitan areas surveyed by the National Association of Realtors, well below the projected 9.5 percent national average.

The squeeze for space will continue this year, when the vacancy rate is expected to shrink to a record low of 5.3 percent, said Scott MacIntosh, senior economist for commercial investment real estate for the association.

With demand showing no signs of declining, the average sales price per square foot for Long Island industrial real estate skyrocketed to $102.49 in 2006 from $83.10 in 2005, according to industrial real estate brokerage firm Greiner-Maltz. The 2006 average sales price per square foot nearly doubles the $51.45 average of 2001.

Long Island, like other areas with multiple port locations, is reaping the benefits of growing global trade that’s affected the nation as a whole, according to the NAR. While not nearly as low as Long Island’s vacancy levels, the projected 2006 national vacancy rate is at its lowest since 2001.

“There are very active ports in New York and New Jersey. A lot is based on the need for distribution space,” MacIntosh said.

While New York metropolitan-area ports generally serve as distribution points for the region, companies that set up industrial facilities in Long Island primarily serve Long Island, Brooklyn and Queens, said Chuck Tabone, managing principal at real estate services firm Newmark Knight Frank.

“There are 3 million people in Long Island — they require products. Many companies find it cost-effective to be here and to distribute here,” Tabone said.

Gentrification in Brooklyn, Queens and Manhattan has reduced once-ample warehouse space there.

“Warehouses are being converted to high-tech office and residential spaces,” Tabone said, particularly in trendy Brooklyn neighborhoods like Williamsburg and Dumbo. “All of those guys that owned industrial buildings there were getting unsolicited offers that were knocking their socks off,” he added.

Eastward industrial migration began in Nassau County, then worked its way out to neighboring Suffolk County. Retail, residential and office real estate demand exhausted supply in Nassau County, said Bill Greiner, chief executive officer and founder of Greiner-Maltz.

“You can’t build industrial buildings in Nassau [anymore]. It’s being developed for higher value use — office, retail and residential,” Greiner said.

The Brookhaven Township in eastern Suffolk County is the new hotbed of industrial construction, Greiner said. Anthony Figliola, economic development manager for the Town of Brookhaven, said what makes Brookhaven “more attractive than other places is we have available land and a very business-friendly economic development office,” which is aggressive in spreading awareness about tax breaks available to business owners.

Sign Up for the undefined Newsletter

Brookhaven, which Figliola said is one of the fastest-growing townships in New York State with a population of about 500,000, is also one of “only two bicoastal townships in New York State,” offering access to multiple active ports. “Brookhaven has the most available land of any municipality [in Long Island] with a little over 1,500 acres of light industrial land,” he added.

Brookhaven’s most active area of industrial development is Yaphank, which saw the construction of more than 1.5 million square feet of industrial space in 2006, Figliola said, adding that he expects an additional 7.2 million square feet of construction in the next three years.

Douglas Omstrom, senior director at Corporate National Realty, also cited Yaphank as a region of available growth, calling it the “next big spot that has vacant and available industrial land.” Quality King Distributors is building a 600,000-square-foot warehouse there, he said.

Demand for Long Island industrial space is stemming from a wide variety of companies including pharmaceutical and generic drug makers and distributors, high-tech manufacturers, direct mailing outfits and food distributors, Tabone said.

Large industrial lease transactions in the third quarter of 2006 included deals by discount retailer and wholesaler Classic Close Outs, which leased a 60,000 square-foot space in West Hempstead; Summit Plastics, which leased a 60,000 square-foot space in Bayshore; and United Biomedical, which leased 40,000 square feet in Hauppauge, according to a Newmark Knight Frank report.

The bulk of industrial real estate sales are driven by investors such as REITs, pension funds and other large institutional investors rather than end users, MacIntosh said.

Greiner is feeling the push from real estate-hungry investors. “We get demand from out of the area for investment property,” he said. “There is so much money around for real estate, and they don’t want to go into stocks,” he added. These deep-pocketed investors generally pay in cash, further driving sales prices upward.

In the third quarter of 2006, Long Island industrial rents remained flat over the prior quarter at an average $8.95 per square foot, according to the Newmark Knight Frank report. “Rents in 2006 are at an all-time high. They have risen over the last three-year period,” Tabone said.

Omstrom said that relatively low interest rates and high rents have spurred some companies to buy rather than rent.

The total volume for industrial space sales in Long Island in 2006 was 4 million square feet of space, compared with 3.5 million square feet in 2005, according to research and consulting firm Real Capital Analytics.

The Newmark Knight Frank report stated that a lack of industrial space under construction in Long Island should push rents gradually higher over the next several years. Just over 400,000 square feet of speculative industrial construction is planned for 2007, Tabone said.

Growing companies on the look-out for larger industrial facilities, such as newspaper distributor Publishers Circulation Fulfillment, may help to push up rental prices.

The company late last year leased roughly 41,000 square feet of space split between distribution centers in Hicksville and West Hempstead. Earlier in the year, it took space in Suffolk County, leasing locations in Hauppauge, Farmingdale and Yaphank, said Lloyd Isaacs, director of distribution for PCF.

He said that the company rents rather than buys because “the business is growing so rapidly, we don’t want to be tied down to any locations.”

Recommended For You