Despite solid demand, industrial vacancy is continuing to rise in New York City as supply floods the market. A CBRE report, which tracked the performance of boroughs besides Manhattan, reveals that vacancy in the first quarter jumped to 7.5 percent, a 60 basis point spike from the previous three months. This marks the fifth straight quarter that the rate jumped.
"This increase was driven entirely by new supply rather than tenant contraction," CBRE explained, with move-outs in the market totaling 593,000 square feet.
"Two projects—2890 Review Ave, a 654,000-sq.-ft. multistory facility in Long Island City, and 1 Nassau Place in Staten Island (332,000 sq. ft.)— delivered without pre-leasing, collectively adding nearly one million sq. ft. of vacant space to the market in a single quarter.
Moreover, Class A vacancy registered at 31.5 percent.
Asking rents followed suit with turbulence, dipping by 2.3 percent from the fourth quarter and a steeper 7.2 percent when put in a year-over-year perspective, to $29.38 per square foot. The largest declines were seen in the Bronx and Brooklyn.
Yet, things seemed healthy from a demand standpoint. Net absorption remained positive at 187,000 square feet, with leasing activity amounting to 780,000 square feet, which CBRE said was on par with historical norms. Plus, signings were up 5.2 percent quarterly.
Pink Sparrow posted the largest lease, with its 62,000 square foot signing in Long Island City. Also, Long Island City was home to the second-largest deal in the first quarter as well, with A1 Heating and Air Conditioning taking 60,000 square feet in the area. Hangman NYC and Skylift rounded out the top four, with 53,000 square feet and 47,000 square feet deals, respectively.
Overall, mid-sized tenants are driving the industrial demand in NYC's outer boroughs. However, according to CBRE, tenants are using a cost-conscious approach and avoiding higher-quality spaces.
While the influx of supply represents a challenge for landlords, this marked the second straight quarter of non-existent construction starts. Local landlords will hope this will result in rent and vacancy trends turning around in the short term.
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