​​Long Island Summer 2023: Development Pipeline Reaches New Heights​

DEVELOPMENT PIPELINE CONTINUED TO EXPAND 

Long Island’s development pipeline continued to grow as developers remained bullish on the industrial market. During the second quarter, 785,000 square feet (sf) broke ground, bringing the total under-construction pipeline to 1.9 million square feet (msf). Despite a modest pre-lease rate of 5.6% among the ongoing projects, many developments are anticipated to secure tenancy before completion as tenant demand for Class A product persists. Year-to-date (YTD) 2023 completions reached 703,000 sf, of which 35.6% were occupied upon delivery. 

Among the five warehouses completed YTD, three buildings were delivered vacant, while another two, located in the Eastern Suffolk submarket, were leased prior to completion. Mondelez International occupied the first of two buildings at the Precision Innovation Park in Shirley, proving that tenants are willing to move further east for the right building at the right price. Two tenants split the final building at the Hampton Business District in Westhampton as developers increasingly opt to demise buildings to accommodate tenants’ needs. 

STRONG MARKET FUNDAMENTALS ATTRACT NEW INVESTMENT 

Since 2018, more than 50 institutional-sized groups, new to the market, have poured capital into Long Island. These investments encompass the acquisition of existing industrial buildings, development parcels, and outdoor storage sites while also providing financing. Investors are enticed by the market’s strong fundamentals, with surging asking rents, tight vacancy rates, and robust tenant demand. Moreover, Long Island boasts a strong labor force and an affluent, densely populated consumer base totaling 7.8 million people, including Brooklyn and Queens. The average industrial building on Long Island was built in 1972, with clear heights of 18 feet, underscoring the need for more modern logistics space to attract new tenants. 

A multitude of national and regional logistics, e-commerce, wholesale, and retail companies, which typically service the New York Metro Area from afar, have recently orchestrated strategic relocations to Long Island. In doing so, they have realized cost savings and achieved sustainability goals by reducing the final mile between distribution centers and their consumers. These corporations are accustomed to operating out of state-of-the-art facilities, a factor that has created competition with local companies for real estate and justified the demand for speculative development. 

OUTLOOK 

Worsening economic conditions and a national rise in vacancy rates has caused some developers to postpone new projects. However, Long Island’s thriving industrial landscape remains resilient, keeping investors optimistic about its future. Nearly 1.5 msf is slated to deliver by year’s end, surpassing last year’s 1.4 msf of completions, with continued momentum going into 2024. Additionally, new developments are breaking ground quarterly, mainly in the Central and Eastern Suffolk submarkets, comprising 70.0% of the pipeline. Developers are drawn to look further east, away from New York City, enticed by lower property taxes, the availability of land, and easier processes for building permits.