Listen to this articleThe white-hot Long Island industrial real estate market of the last couple of years cooled somewhat in the first half of 2024, as it tries to digest millions of square feet of newly built space.
There’s a lot to fill. Since 2022, more than 3.7 million square feet of Class A warehouse and distribution developments have been built here, which is more industrial product to come online than was delivered in the previous 10 years combined, according to a new report from JLL.
Fueled by the new developments, industrial leasing activity was strong throughout the last two years, with each quarter of 2022 and 2023 averaging more than 207,000 square feet of Class A leasing. However, this year, Class A leasing dropped to an average of 116,000 square feet per quarter, down more than 44 percent from the previous two-year quarterly average.
Due to the space increase and the tepid pace of leasing, the total industrial vacancy rate on Long Island crept up to 4.8 percent in the second quarter, according to the report. By comparison, the industrial vacancy rate was just 3.4 percent in Q2 2023, and the five-year average vacancy rate was 3.6 percent.
The JLL report attributes the drop-off in leasing to a few factors, including that “pent-up demand has already transacted; logistics space leasing has dropped nationwide; and macroeconomic headwinds have made occupiers more selective in capital expenditure, especially in high-cost markets.”
Rents, which have risen steadily for industrial properties over the last few years, are still rising, just not as quickly as they were. The average asking rent for Long Island industrial properties in the second quarter was $18.62 per square foot. For last year’s Q2, the average asking rent was $17.74.
The good news is that there is a little more than 750,000 square feet of new industrial development currently under construction here, which JLL reports is the least amount since the first quarter of 2021. And so far, there has been no new construction started this year.
Doug Omstrom, executive vice president for Northeast Industrial Region at JLL, pointed out that slowdowns are normal for the summer, though after the flurry of activity in recent summers, this year seemed slower by comparison.
“Typically, we’ve always had these normal summer slowdowns. But the last couple of years after COVID, the summers have been extraordinarily busy. So this year it kind of went back to normal,” Omstrom told LIBN. “Plus, you’ve got an election year, with certain groups holding off until after the election.”
Despite the weaker Q2 numbers, Omstrom remains optimistic about the industrial market moving forward.
“It seems like in the last two weeks or so, we started getting the calls back, with tenants going out and looking for space, which is good. Definitely the activity has picked up in the last 10 days,” he said. “We have deals coming at most of our properties right now, which is all positive. Though the last six months have been slow, it seems like we’ve turned the corner.”