How low can it go?
That’s what commercial real estate brokers are asking about the vacancy rate for Long Island industrial properties, which has now fallen to the lowest level in recent history.
The overall industrial vacancy rate on Long Island dropped to 2.6 percent in the third quarter, which is more than 30 percent lower than the area’s pre-pandemic vacancy rate of 4.5 percent, according to a report from Cushman & Wakefield.
Vacancy rates in each of Long Island’s industrial submarkets have declined significantly over the last year, with vacancy rates cut in half or more in western and central Nassau County and western Suffolk County. The overall industrial vacancy rate in western Suffolk is just 1.1 percent, C&W reports.
The tight supply of available space and ongoing supply-chain constraints continues to limit industrial leasing activity, which has decreased every quarter this year. There was just 401,744 square feet of industrial space leased in Q3 2021, the lowest amount of leasing activity in more than four years.
Despite the obstacles, the Long Island industrial market has seen more than 2.08 million square feet of positive absorption so far this year, a big turnaround from the same time last year, when there was just 111,245 square feet of positive absorption.
Not surprisingly, rents for Long Island industrial space have been climbing steadily. The overall average asking rent for industrial properties in the third quarter reached $12.45 per square foot, the seventh consecutive quarter-to-quarter increase.
The outlook for rents is for continued growth, since new industrial supply that’s currently under construction will command higher rents than existing properties. C&W projects there will be nearly 2.5 million square feet of new Long Island industrial space by the end of next year.
“As the newer Class A industrial product becomes available towards the end of 2022, a new threshold for leasing rates will be established,” said Kyle Burkhardt, an industrial broker with Cushman & Wakefield in Melville. “We’re forecasting an increase in rental rates over the next 12 months, not only for new Class A properties, but also for all Long Island industrial space across the board.”
By 2024, there could be as much as 5 million square feet of new industrial space here. Kansas City-based NorthPoint Development is planning to build four warehouse and distribution buildings totaling about 2.5 million square feet on 115 acres in Yaphank and up to another 1.1 million square feet on 92 acres nearby.
Other ongoing industrial developments include two projects in Melville from New Jersey-based Hartz Mountain Industries. The company is building about 900,000 square feet of logistics space at the 49-acre former Newsday headquarters, currently being marketed by CBRE, and it is also developing a 400,000-square-foot distribution complex on 33 acres on Spagnoli Road, which is being marketed by Cushman & Wakefield and KBC Advisors.
Bristol Group Inc., a San Francisco-based industrial real estate development firm, is currently redeveloping a 10.75-acre site in Commack into a 178,134-square-foot distribution center marketed by JLL and Brookfield Properties recently paid $45 million for a long-vacant parcel of industrial land in Hicksville, where it plans to develop a warehouse and distribution complex.