Availability Rate Remains at 12%, Lowest Level Since 2005 Demand for Quality Office Space is Strong and Outlook Remains Positive for 2018
According to CBRE’s industry-leading Long Island office market report, a decline in availability in an already-tight market led to modest leasing activity in the fourth quarter of 2017 when compared to the robust leasing during the same time in 2016. Leasing over the fourth quarter was on par with Q3 2017, totaling 357,000 square feet, but below the 625,000 square feet recorded in Q4 2016. Annual leasing activity totaled 1.77 million square feet, down 10% from Q4 2016 and 14% below the 10-year average. The Class A segment posted total leasing of 176,000 square feet.
“Though availability in the Long Island Market is tight, especially in the Class A segment, the demand for office space is still strong. The rental rates in Suffolk and Nassau Counties remained consistent this past quarter and, overall, increased modestly throughout the year,” said Ellen S. Rudin, Senior Managing Director of CBRE’s Long Island and New York City Outer Boroughs offices. “We are still seeing leasing activity in all sectors, particularly from the healthcare and insurance industries, and the outlook for the market in 2018 remains very positive.”
Lease transactions below 10,000 square feet made up the majority of the activity during the fourth quarter. The largest transaction was a 35,700-square-foot lease to Catholic Health Services of Long Island at ThreeHuntington Quadrangle in Melville. The Central Nassau submarket, which produced the most leasing activity, was dominated by insurance companies, including a 35,000-square-foot commitment by Brown & Brown Insurance at 900 Stewart Avenue in Garden City; a 27,000-square-foot lease by York Risk Services Group, Inc. at 333 Earle Ovington Boulevard in Uniondale; and Allstate Insurance Company’s19,600-square-foot lease at 1225 Franklin Avenue in Garden City.
Despite the slower than normal leasing activity, office space was steadily absorbed, resulting in negative quarterly absorption of only 9,000 square feet. The year ended with total positive absorption of 482,000 square feet. Western Suffolk registered negative absorption of 34,000 square feet due to 145,000 square feet coming to market at 265 Broad Hollow Road in Melville. Eastern Nassau also slipped into negative absorption territory with Briarcliffe College vacating 118,500 square feet at 1055 Stewart Avenue in Bethpage later this year.
Long Island’s availability rate during the fourth quarter was 12.0%, which is unchanged from the previous quarter and down from 12.4% in Q4 2016. Long Island remains supplyconstrained with large blocks of space harder to come by, especially in Class A product in Nassau County. Year-over-year, Long Island’s overall average asking rents increased from $26.30 to $26.77 per-square-foot. Class A average asking rates rose from $30.62 to $31.16 per-square-foot year-over-year, while Class B increased from $23.94 to $24.59 per-square-foot over the same period.
In terms of investment sales, office transaction volume in 2017 decreased by 26% from 2016; the majority of office activity occurred during the first half of 2017. The largest transaction during the fourth quarter of 2017was the sale of Hauppauge Office Park, a portfolio of three office buildings totaling 283,000 square feet located at 878, 888 and 898 Veterans Memorial Highway in Hauppauge. Signature Acquisitions, LLC purchased the Class A properties for $61 million. In Uniondale, two office buildings sold for $5 million each to investors. The assets were both long-vacant, Class B buildings located at 70 and 107 Charles Lindbergh Boulevard, which are 100,000 square feet and 99,000 square feet, respectively.
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CBRE (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.us.
