It may lack the glamour and sheen of Manhattan’s other commercial and residential sectors, but industrial real estate in the five boroughs, the unappreciated stepchild of New York’s real estate scene, is being embraced anew.
There are signs that the industrial market is holding steady — at least for now — amid growing fears that Manhattan’s office and residential markets may be falling off a cliff.
“Industrial space tends to be the meat and potatoes of the market: the delivering of food and services. People still eat and need their cars repaired and their phones fixed and that doesn’t stop even in a recession,” said John Reinertsen, CB Richard Ellis’s Long Island City industrial real estate broker. “So we were kind of immune for a moment.”
John Maltz, president of Greiner-Maltz, a commercial and industrial real estate brokerage in New York City and Long Island, said vacancy rates have remained more or less unchanged.
“If you look at the availability rates in my database, which includes 15,000 listings in Brooklyn and Queens, you would say, ‘what recession’? I don’t see a recession. Landlords are being real hard-asses, they are not dropping their rates and there are no fire sales out there. We haven’t seen a flood of space.”
The shining exemplar of industrial real estate is the Brooklyn Navy Yard, which continues to thrive. Since last fall, new developments totaling 1.3 million square feet have been announced for the yard, which include a multi-story building to be built for B&H, the photography and video retailer, and a project for Steiner Studios, which opened at the industrial park in 2004 and is now renovating a vacant building at the 300-acre industrial site on the East River between the Williamsburg and Manhattan bridges.
According to a number of brokers and analysts, there are several reasons for the health of the industrial sector. Population growth in the New York region continues to rise at a steady pace and many of the new arrivals come with entrepreneurial ambitions, which help buoy the leasing market for some of the small- to mid-size industrial spaces.
But ironically, the resiliency is also due in part to the decline of heavy industry here.
The virtual death of the region’s once thriving steel, garment, plating and printing industries over the past several decades left the Bloomberg administration with the opportunity to convert much of the now abandoned industrial space through rezoning. Where once giant manufacturing warehouses stood, mixed-use development projects with space dedicated to residential, retail and commercial use have sprung up. The most recent example of this is the Bloomberg administration’s recent victory in scoring City Council approval for plans to convert a 62-acre industrial site at Willets Point in Queens into a mixed-use development.
“What has happened over the last 15 years is many of these areas have been rezoned for mixed use and many were converted to office, retail or residential use. So while there has been a drop-off in the demand for industrial space, the net supply of industrial real estate has been less than the demand, so the price has gone up,” said John Ritter, the executive vice president for Sholom & Zuckerbrot Realty.
Some estimates put the amount of industrial space that has been converted over the past 10 years at 20 percent of the total amount a year.
According to numbers provided by CBRE, Queens and Brooklyn have a combined total of 155 million square feet of industrial space. Both have a vacancy rate of around 4 percent.
The decline in the availability for one-story and multi-story space caused by conversion has driven the average lease rate up to $12.20 per square foot and the average sales price to as much as $280 per square feet, according to a report released by Sholom & Zuckerbrot. The majority of leasing activity is occurring in the 10,000- to 20,000-square-foot range with sales dropping precipitously because of the credit crunch, according to the report.
This being a recession, nothing is foolproof and everyone is bracing for tougher times ahead. Ritter said in the last few months he has seen rents in certain areas drop by as much as 20 percent and says he is expecting a “dramatic” downward drift when the fourth quarter numbers for the sector are released this month.
“What happens in a downturn is the portions of the market that are less desirable get hit first and worse. While Long Island City and Sunset Park are pretty strong, areas such as Ridgewood, East New York, the Flatlands and the South Bronx have seen the vacancy rates go up much faster and the prices drop much faster,” he said. Subway access can make an area less vulnerable.
For now, analysts and brokerages for industrial sites are holding their breath and keeping an eye on the incoming Obama administration. Whether or not the administration follows through on its pledge for a sweeping infrastructure renewal plan could determine whether this sector stays buoyant or goes the way of its more glamorous sister sectors in Manhattan.