Long Island Summer 2024:
Development Pipeline Continues to Grow
NEW PROJECTS ARE ON THE HORIZON
Long Island’s development pipeline continues to expand as developers remain bullish on the industrial market. One new project has broken ground so far this year, bringing the total under construction pipeline to 694,000 square feet (sf). Additionally, several developments are conducting site work and are expected to break ground imminently, including the Expressway Industrial Park at the former Computer Associates headquarters in Islandia. Although the prelease rate among these ongoing projects is a modest 14.6%, tenant demand for Class A product is increasing in the second half of 2024.
Year-to-date (YTD) 2024 completions reached 490,000 sf, with 48.2% of the space occupied upon delivery. Of the five warehouses completed YTD, three were delivered vacant, while the other two, both in Suffolk County, were preleased. Notably, Keurig Dr. Pepper occupies the entire building at 125 Baylis Road in Melville, which was recently sold to real estate investment giant BentallGreenOak, representing one of the first stabilized new construction warehouses to trade hands. Additionally, U.S. Auto relocated from Ronkonkoma to Link Logistics’ 45 Oser Avenue in Hauppauge, leasing the entire building.
RISING VACANCY AMID HISTORIC EXPANSION
Since 2019, nearly five million square feet (msf) of new construction has been completed, marking the market’s largest expansion cycle since the late 1980s. Investors and developers have been drawn to Long Island by its strong demographics, including a solid labor force and densely populated, affluent, consumer base. Additionally, rental rate growth has nearly doubled since the onset of Covid-19 in Q2 2020, and tight vacancy rates have enticed institutional groups from across the country.
The overall vacancy rate has steadily increased from a historic low in 2022, with new construction buildings reaching 43.5%, while vacancy in the warehouse/distribution market stands at 5.4%. New construction accounts for only 4.6% of the total market inventory, but many projects were completed within a two-year span (2022-2023), raising concerns among municipalities about potential over-building. Despite a surge in demand from national and regional logistics, e-commerce, wholesale, and retail companies expanding to Long Island, many speculative developments have yet to secure tenants. This has sparked significant community backlash, including protests against new projects, delays in site plan approvals, and revisions to current plans. Some municipalities have even implemented temporary moratoriums on new developments, aiming to pause further growth until the economy strengthens and existing projects are leased.
OUTLOOK
The prolonged high-interest rate environment, coupled with softening tenant demand, has led developers nationwide to postpone new projects. However, Long Island’s industrial landscape remains resilient, with investors staying optimistic as economic conditions are expected to improve heading into 2025. In addition, more prospective tenants are entering the market, and existing companies are expanding their space requirements, particularly with a growing focus on cold storage and rail access. By the end of the year, 616,000 sf of industrial space is slated to deliver, bringing the total construction completions for 2024 to 1.1 msf, marking the third consecutive year of surpassing 1.0 msf. Developers are continuing to adapt a more strategic approach to projects, with hopes of reintroducing more build-to-suit developments in the coming years.
