NYC’s Outer Boroughs Overtake San Francisco as Most Expensive Industrial Market
By Abigail Nehring October 20, 2023 6:03 pm
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Industrial space in New York City’s outer boroughs has reclaimed the top spot as the most expensive industrial market in the country, overtaking the San Francisco Peninsula, according to a Cushman & Wakefield (CWK) report.
Overall industrial asking rents in the outer boroughs — which covers the Bronx, Brooklyn, Queens and Staten Island — rose slightly to $26.02 per square foot in the third quarter of 2023, enough to make it the most expensive of 83 industrial markets C&W tracks.
Even with the bump, asking rents in the outer boroughs have plateaued this year after rising steadily the past two years, according to the report, which covers 1,856 renter-occupied buildings larger than 20,000 square feet.
But C&W senior researcher Dimitri Mastrogiannis said he anticipates asking rents will continue rising as newer developments with higher price points flood the market.
And it’s not just new construction. As older space empties out, landlords are putting more money into their properties and hiking the rent in the process.
Not only are new, Class A buildings more expensive, “but your average building in these markets is more expensive as well,” Mastrogiannis said. “It’s a very typical supply-and-demand graph.”
Even with the expected increase in asking rents, the outer boroughs’ industrial market isn’t all sunshine and rainbows.
The overall industrial vacancy rate there grew slightly by 20 basis points to 4.4 percent. Vacancy has been inching upward since reaching a historic low of 3.7 percent last year, according to C&W.
That’s in large part because the industrial construction pipeline has exploded across the country in the wake of the pandemic boom in the market, thanks to e-commerce’s massive appetite for industrial space, Mastrogiannis said. New buildings typically take nine to 12 months to lease up after they hit the market.
The outer boroughs have 3.5 million square feet currently under construction, with 2.6 million square feet of that set to open by the end of 2024, according to C&W.
Turnbridge Equities’ 1.3 million-square-foot development at 980 East 149th Street in the Bronx neighborhood of Hunts Point will be among the city’s largest logistics centers. Other notable industrial projects under construction around the city include Innovo Property Group’s 680,000-square-foot development at 23-30 Borden Avenue in Long Island City, Queens, and LBA Logistics’ 385,510-square-foot project at 683 Court Street in Red Hook, Brooklyn.
New outer borough leasing activity, which excludes renewals, totaled 306,927 square feet in the third quarter, a massive 59.1 percent drop quarter-over-quarter, according to the C&W report.
The full year isn’t looking much better, with outer borough leasing volume reaching 1.7 million square feet year to date, down 37.8 percent from the same time last year.
In the largest deal of the third quarter, Net Zero Logistics took 70,200 square feet — an entire building — at 1970 Pitkin Avenue in East New York, Brooklyn. Kings County also netted the second largest lease of the quarter with Interstate Waste Services signing on for 48,000 square feet for the entire building and land at 1427 Ralph Avenue in Canarsie.
Although demand for industrial space is softening, Mastrogiannis stressed that broker confidence is still high.
“There are a few negatives in the numbers, but brokers are still out there showing space, they’re getting deals across the finish line,” Mastrogiannis said. “Investors are still bullish on the market.”
Abigail Nehring can be reached at anehring@commercialobserver.com.
