New York City had a good year for industrial leasing—all things considered. In 2020, industrial leasing activity totaled 7.2 million square feet, down year-over-year 17.8%, despite the pandemic, according to research from CBRE.
Leasing velocity slowed in the fourth quarter. With a recorded 870,000 square feet in leasing volume and a total of 50 transactions, activity was down more than 60% for the quarter. Through the year, ecommerce companies drove leasing activity, but in the fourth quarter, ecommerce leasing accounted for only 327,000 square feet of space compared to 1.6 million square feet in the third quarter. However, it wasn't decreased demand that caused the slowdown, but rather a decrease in availability of large warehouse and distribution space.
The vacancy rate in the forth quarter increased from 8% to 8.2%, and there market had negative absorption of 388,100 square feet. No leases were signed in Staten Island in the fourth quarter. Queens had 283,000 square feet of leasing activity, while the Bronx has 145,000 square feet. Brooklyn led leasing activity at the end of the year with 440,000 square feet in leasing volume.
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The annual activity was enough to drive rent rate growth. Year-over-year asking rent was up 5.6% at the end of the year. However, the fourth quarter decline in leasing velocity dragged rents down, decreasing 1.8% quarter-over-quarter to $22.56 per square feet. Brooklyn, however, was the only New York City submarket with a decrease in fourth quarter rents. Rents in Queens and the Bronx actually increased at the end of the year, and they were flat in Staten Island.
There is nearly 9 million square feet of new industrial product in the pipeline, with 2.1 million square feet currently under construction, a total of nine properties. Nearly all of these properties are warehouse and distribution spaces. There are an additional 14 properties in the construction pipeline, adding more class-A space to the market. This could help to drive leasing activity for ecommerce space, which is in high demand.
It will also help to being quality product to an outdated supply of building stock. New York City has largely class-B and class-C product with an average age of 75-plus years. This means properties have compact floors, few loading docks, limited parking and lack the digital infrastructure that modern logistics and e-commerce operations demand. Deloitte has made recommendations that owners upgrade their properties to be more competitive and respond to current occupier needs.
Kelsi Maree Borland
