Cresa releases Q2 2013 Tenant's Guide for the Long Island and North American real estate markets
Long Island's economy continues to remain sluggish but demand for Class A office space and modern industrial space in wider US market is strong.
The Long Island Commercial Real Estate market, which is larger than the commercial market in many US Cities, is comprised of 63 million square feet of office space and almost 140 million square feet of industrial space. Despite some significant positive gains, Long Island's economy remains sluggish.
Nassau and Suffolk counties have the fastest-growing economies in New York, Private-sector jobs grew at a rate of 2.9% in April versus the same month last year-the fastest of any metro area in the state, the fourth straight month that Nassau and Suffolk Counties added jobs at a rate of 2% or more. Long Island's unemployment rate fell to 6.1 percent from 7.2 percent a year ago, the lowest rate for May since 2008 .
Long Island has now gained back all of the jobs it lost after the financial crisis and added more than 20,000 more.
Nearly half of the 30,500 jobs added on Long Island over the past year were in low-wage industries like retail and restaurants. The education and health sectors also added 7,200 jobs in Q2 compared with last year and efforts to attract technology and biotechnology startups have been successful.
One reason for the turnaround is that local governments have ramped up the tax incentives to get companies to move to or stay on Long Island. Also Long Island's public companies have turned increasingly to foreign markets to boost sales since the recession, expanding heavily in Asia and Europe as the U.S. economy has struggled to recover. Of the roughly 63 million square feet of office space comprised of 1,776 spaces in 940 office buildings, approximately 14.2% is available. This compared to 17% from the same period a year earlier. Asking rental rates have remained essentially unchanged at $24.19 average over all office classes. The vacancy rate amongst the 140MM square feet of industrial space has dropped to 10.1% from 11.9% during the same period a year earlier. Rental rates remain relatively unchanged at approximately $8.27/per square foot Net.
In spite of considerable gains over last year, the market is still in favor of the tenant and a credit tenant still has significant negotiating power. Tenants should investigate the tax incentive programs that the County IDA's are offering to induce them to grow on Long Island. A new program offering tax free zones for companies locating on or near the universities is very compelling as well. One area of concern will be rising interest rates. As rates increase and vacancy rates remain high, landlords who need to refinance may find themselves "underwater". This may force them to raise their rental rates to meet higher costs and may put other "non-deep-pocketed" landlords in a precarious position forcing some landlords to cut costs by reducing services and may even force some of them to look to sell or face foreclosure.
We reach the mid-point of 2013 with economic indicators mostly positive, in spite of mixed signals from the U.S. government and treasury. Job growth continues, and was steadier in the second quarter of 2013 than in the first. Despite this progress, it will be some time before we return to pre-recession employment levels.
The market response to economic growth has meant a continued demand for office and industrial space. Overall in North America, demand for Class A office space and modern industrial space is strong. As a result, we are seeing lower availability in most markets, steady or increasing absorption and rising construction and deliveries overall.
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