Presented By: Berdon LLP
After Challenging Years, The Long Island Office Market Shows Clear Signs Of Recovery
Future Of Alternative Markets, brought to you by Berdon LLP
For the Long Island office market, 2021 was a mildly restorative year after the virtual economic collapse caused by our 2020 immersion into COVID-19. While the market is still short of the prosperous 2019 figures, Long Island’s office market seems to be at the beginning of a rebound.
According to Colliers, positive absorption returned to the LI office market in the third quarter of 2021 after five consecutive quarters of negative net absorption. Long Island posted 305,363 square feet of positive net absorption in Q3, improving the availability rate 90 basis points to 9.2 percent. Colliers also noted that while asking rents overall were flat at $27 per square foot, Class A space was “asking a 9.6 percent premium at $29.98 per square foot.”
After historic highs in office availability throughout 2020, Long Island’s availability hit 11.4 percent in the fourth quarter of 2021, according to Avison Young. Asking rents began to rise, with rents in the fourth quarter 0.1 percent higher than in the previous year. Sublease availability, however, continued to take a toll on office fundamentals, with 687,000 square feet of available sublease space.
But a fourth-quarter 2021 office report from Newmark referred to that time as “an inflection point” for Long Island’s office market, citing 473,435 square feet of positive net absorption that quarter, which brought the year-end total up to a positive 250,962 square feet. (By comparison, total net absorption for 2020 was negative 1.32 million square feet.)
The Newmark report reiterates 2021’s stabilizing effect.
“With a dense population of qualified workers and growing demand for modern amenities, Long Island office fundamentals have remained stable amid a period of economic uncertainty,” the report reads.
Marc Fogel, a partner at Berdon Accountants and Advisors, notes that hybrid work schedules account for why office life is making a return — but not a complete one — to pre-COVID occupancy numbers.
“We are now two-plus years since the inception of the pandemic with many people working remotely 100 percent of that time. People have gotten very comfortable working from home,” said Fogel. “As the majority of these people return to the office, many will be looking for some sort of hybrid schedule of working from home a certain number of days a week.”
Still, numbers are improving. Newmark expressed the vacancy rate at the end of fourth quarter 2021 as 9.7 percent, noting that by comparison, “vacancy rates in neighboring suburban tri-state markets were hovering slightly above 20 percent upon the conclusion of 2021.”
“The broader statistics can argue both improved activity and increased supply via direct and sublease space,” said David Pennetta, executive managing director, LI, for Cushman & Wakefield. “We looked at Class A office buildings with 50,000 square feet and above in availability, and that vacancy rate was only 1.75 percent. No new speculative construction since the mid-late 2000 is a contributing factor. Class A rents are predicted to spike up to new highs for larger availabilities.”
Avison Young noted several conditions in its report that seemed to indicate a ripe environment for return-to-office success. The unemployment rate on Long Island fell from “a post-COVID high of 17.5 percent in April 2020 to 4 percent in October 2021,” and “the share of the total Long Island population that is fully vaccinated is 71.9 percent, which is higher than the national average and may encourage stronger return-to-office efforts.”
Fogel also noted that Long Island would benefit from locals losing their desire to commute post-pandemic.
“Companies with their main offices in New York City may consider opening up offices in the suburbs — i.e., Long Island — in order to help retain employees who do not want to endure the long commutes again and to promote collaboration and maintain their firm culture in these satellite offices,” said Fogel.
Just this month, according to Newsday, Hotaling Insurance Services left its Manhattan headquarters for 6,500 square feet in Melville. Its new office will house 40 to 60 employees. Company CEO and co-founder Bobby Hotaling credited the move to his employees no longer wanting to commute to NYC.
None of this is to say that the pandemic’s space woes are coming to an end. Avison Young’s report also pointed out that as “office occupiers continue to navigate their long-term workplace strategies,” last year saw “post-COVID annualized leasing activity that is 32.6 percent below the preceding 20-year annual average.”
Still, 2022 is showing signs of continued revival for the office market.
For the first quarter of 2022, Colliers reported 74,017 square feet of positive net absorption on Long Island. The quarter also saw news of Long Island’s largest office deal in years, when The Birch Group purchased a 665,000-square-foot office portfolio in January consisting of two Class A office buildings in Jericho, N.Y., for $212 million from DRA Advisors and Onyx Equities.
And while that was an outlier in its size, office deals are happening elsewhere. According to Long Island Business News, Gold Coast HDM Realty acquired a 15,000-square-foot building consisting of 8,500 square feet of office space and 6,500 square feet of warehouse space at 275 Oser Avenue in Hauppauge from DNR Holding for $3.25 million.
Other office transactions in the first quarter, according to a report by Cushman & Wakefield, include just over 43,000 square feet at 1180 Veterans Memorial Highway in Hauppauge for $6.5 million; an office of 31,500 square feet at 160 Oser Avenue in Hauppauge for $6.6 million; and 21,000 square feet at 50 Glen Street in Glen Cove from Equishares Real Estate to Edward Khalily for $6.1 million.
The report also highlights several major new office leases, including 17,500 square feet at 1985 Marcus Avenue in Western Nassau County to WellLife Network, 12,500 square feet at 11 Oval Drive in Central Suffolk County to ThyssenKrupp Elevator, and 11,111 square feet at 265 Broadhollow Road in Western Suffolk to Planet Home Lending.
So while the pre-pandemic heights might be out of reach for the time being, there is no question that the Long Island office market is experiencing a revival and that the worst days of the COVID office doldrums on Long Island are in the past.
“I think the Long Island office market has a real opportunity to thrive in the coming years,” said Fogel. “We are slowly emerging from the pandemic, and as more people get vaccinated and boosted and additional treatments to cure or prevent COVID-19 are discovered, this should enable more people to get back to the office.”
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