Long Island's Office Market Hits Lowest Vacancy Rate Since Recession
While demand for suburban offices has fallen nationwide, the Long Island office market experienced its strongest year, both in leasing and in investment sales, since the recession.
Vacancy hit a new low in Long Island in 2016, according to research by brokerage firm JLL, dropping 350 bps in 2016 compared to 2015. In six years, the vacancy rate on Long Island has dropped from 18.7% to the current level of 13.4%. Long Island now has a lower vacancy rate than the Washington, DC, region.
In 2016, Long Island posted about 1.3M SF of positive net absorption, helping to drive down the vacancy rate. Capital One expanded its foothold on the island, JLL reports, when it bought 198k SF at 1307 Walt Whitman Road in Melville, formerly owned by First Data Corp.
The one source of frustration for Long Island office landlords could be the decrease in average asking rent, which dropped from $26.35/SF in 2015 to $26.10 last year. But considering asking rents haven't gone below $26/SF or above $26.54/SF, it wouldn't be surprising to see rents tick up in 2017 as the market adjusts to its improved fundamentals.
Those same fundamentals should continue to drive investors to target Long Island office buildings, according to JLL. While 2015 set Long Island's record for building sales — that year also broke the record in New York City — 2016 was only slightly off the pace, with $366.8M worth of buildings trading hands.
"This trend will undoubtedly continue through the next year," JLL's report states, "as several office properties financed in CMBS loans reach maturity in upcoming months."
Western Nassau County continues to lead the way for Long Island, with vacancy rates below 8% overall and at 4.2% for Class-A space. Considering the market is completely land-constrained, and there are only 339k SF worth of offices under construction on all of Long Island at the moment, investor appetite on the border of NYC should be quite healthy in 2017.