With healthy absorption, asking rents, vacancy and availability, the commercial market in Long Island remains stable, yet the completion of current construction may shake up the market and disturb this balance.
The region-wide asking rent was $26.41 per square foot in the second quarter, up $0.81 from the same period in 2005, according to CB Richard Ellis, ($28.58 in Nassau; $24.28 in Suffolk). The vacancy rate remained static at 10.6 percent and absorption took in 240,000 square feet, raising the year-to-date value to 92,000, the first positive year-to-date absorption since year-end 2004.
According to CBRE, leasing activity doubled from second quarter 2005 to 2006, from 355,000 square feet to 717,000.
Economist Pearl Kamer of the Long Island Association of Realtors sees a tight Class A market, with 9.3 percent vacancy for Class A space in Nassau and 12.5 percent in Suffolk.
“What’s interesting is you have a million square feet of Class A office space planned or under construction on Long Island right now,” she said. “Given the fact that we have a rather flat Long Island economy right now — we’re not gaining that many new jobs [and] these buildings will be slow to fill — I think the vacancy rate, at least initially, will creep up.” Long Island employment rose by 7,300 jobs in the last 12 months, according to state data.
David Leviton of Cushman & Wakefield agrees with Kamer, but says perspective is crucial: With nearly 40 million square feet of office space on Long Island, 1 million square feet of new inventory will hardly flood the market. He also notes that industrial space occupies 150 million square feet, three to four times the volume of office space, making the office market the lesser of two siblings.
“The use of office space is tied precisely to employment,” Leviton said. “There hasn’t been much happening either in the negative or positive. It’s stable. It is a marketplace that feeds off the ancillary marketplaces, especially New York City.”
While New York City could drive up the Long Island market, Leviton outlined several weaknesses that drive corporations to competitors such as Fairfield or Westchester counties.
The current security-conscious national climate means corporations want facilities where rapid emergency evacuation is possible. “The physical size and shape of Long Island make it a marketplace that people wouldn’t flock to,” he said.
Also, Long Island’s taxes and utility costs could scare off corporations — not necessarily to Fairfield or Westchester counties, where those costs are similar — but to India or China, particularly the call center sector.
Leviton also cites the weakness of the area’s transit system, marked by crowded highways and commuter trains. Despite these three weaknesses, “the employment base is overeducated and underemployed,” Leviton said.
Since the Long Island economy has chugged along without major change, the region’s greatest obstacle may be its marketability, a challenge shared by Northern New Jersey.