Long Island Office Market Showing Strength, Flight to Quality

MELVILLE, NY—A strong economy that included a host of business expansions has led to high office rental rates and declining office vacancies on Long Island in the second quarter, according to brokerage firm JLL.

The second quarter saw Long Island's unemployment rate fall to 4.5% (at the end of April) as compared to 5.9% a year earlier, which has the region post 100,000 square feet of positive absorption in the second quarter, JLL reports. Nassau County recorded 148,304 square feet of positive absorption and Suffolk County posted 16,777 square feet of negative absorption.

Long Island's office market posted healthy market fundamentals at midyear 2014, with space users displaying a clear preference for Class A product, JLL officials say. Although Long Island's overall vacancy rate rose slightly to 16.2% in the second quarter of 2014 from 15.6% one year earlier, Long Island's Class A vacancy rate fell to 15.7% this quarter from 16.1% at the end of the second quarter of 2013.

Overall rents in Long Island fell to $25.81 per square foot in the second quarter of 2014, a decrease of 1.1% from $26.10 per square foot one year earlier. The county's Class A rents rose to $29.81 per square foot, an increase of 2.4% from $29.11 per square foot 12 months ago.

“The Long Island office market was characterized this quarter by overall increasing rental rates, declining vacancies and positive net absorption,” says Raymond Ruiz, executive vice president and head of the JLL's Long Island office. “The market's private sector job count— at 1,103,300 in May —was the highest ever recorded. We forecast a flight to quality by Long Island space users this year as new product is developed and corporate expansion continues.”

Approximately 423,000 square feet in leasing transactions were closed in the second quarter of 2014, below the 640,000 square feet achieved in the same period one year ago, but more than the 315,000 square feet seen in the first quarter of this year.

Among the more significant transactions in Nassau County in the second quarter included Dealertrack Technologies Inc.'s 233,000-square-foot build-to-suit deal at 3400 New Hyde Park Road in North Hills, Flushing Financial Corp. 90,000-square-foot lease at RXR Plaza in Uniondale, North Shore-LIJ Health System's renewal of 50,000 square feet at 600 Community Drive in Manhasset and Antech Diagnostics' renewal of 49,000 square feet at 1111 Marcus Ave. in Lake Success.

Approximately 253,900 square feet of office space was under construction throughout Long Island at midyear 2014, with 35% of that amount pre-leased. Class A projects include Allstate Insurance Co.'s 80,000-square-foot new headquarters at 878 Veterans Memorial Highway in Hauppauge and the 54,999-square-foot The Harp Building, a medical condominium at 805 Northern Boulevard in Great Neck. In addition, the Hampton Business District in Westhampton, a nine-building complex totaling 440,000 square feet of office and industrial space, broke ground in April.