I love this time of the business year when we get to reflect on our accomplishments and defeats. It also allows us to try to understand what lies ahead for the New Year.
In 2014, we saw the expansion of companies that made it through the 2008 recession and, in my experience, the same progression occurs throughout economic cycles.
Surviving companies and their respective industries are the beneficiaries of increased revenue, and after a period of time, usually a couple of years, start to realize they have to expand.
In the last two years, we witnessed existing buildings on the market rapidly being leased or sold. As a result of new inventory coming on the market and demand rising, we saw prices increase. To further complicate matters, and as I personally witnessed, multiple offers were presented on the same buildings, creating a low level bidding war on properties for sale.
Currently, in Nassau and Suffolk counties, asking prices for new inventory coming on the market are starting to deter purchasers from not only having to inspect buildings thus maintaining the market's momentum, but submitting proposals, in some cases, not within the range, to get a response from the seller. This is particularly true in Nassau County where the inventory is already very tight.
Furthermore, today's interest rates still at historically low levels can certainly fuel the appetite of companies looking to make a commitment and take advantage of long-term fixed rate financing. However, in my opinion, what has really stoked the activity and the appreciating levels of buildings on Long Island are the record prices of existing buildings being sold in Brooklyn and Queens. The markets for conversions in those areas, along with available air rights, have made it difficult for warehouse operators and manufactures to remain in these boroughs. It is not unusual for the per s/f price of an industrial building in Brooklyn or Queens to be in the range of $250 per s/f.
Suffolk County has also seen its market appreciate. Again, the exodus from Brooklyn and Queens, along with expansion of existing Long Island businesses, and Suffolk Industrial Development Agency (IDA) impacts, has added to the region's growth.
As always, there are a couple of wild cards that require our awareness. Interest rates have certainly helped propel the market to where it is today. I believe it will be a matter of time before interest rates rise. Additionally, a helping hand will come from the Fed's leaning towards eliminating its bond purchasing which will increase borrowing costs across the board.
Banks have also jumped on the bandwagon; although banks are aggressively looking to lend money and are carefully staying within the guidelines of lending to companies with strong financial backgrounds and not over leveraging transactions.
Other sectors that have certainly assisted in the growth over the last few years have been the IDAs, the Small Business Administration (SBA), and let's not forget Empire State Development, which now brings us to what may lie ahead in 2015.
Factoring in the unsettled actions across the world, Europe's struggling economy, along with the negative interest rates in that part of the world, it certainly will be a challenge to maintain our continued growth. It's possible that we may not be affected locally.
Let's take a look at the local economy: Activity seems to be brisk and all signs are pointing in a positive direction. We have the lowest vacancy rates in both the industrial and office sectors since 2006. I have seen some companies looking to expand and to keep momentum going throughout 2015. Plus, with the limited amount of existing buildings, you may even see a spurt in the build-to-suit market.
The industries that I believe will continue to expand will be the healthcare and the ever-changing technology sectors. Let us not forget the food and hospitality industry as our economy continues to be vibrant, people love to eat out. This, in turn, has a ripple effect across associated industries as our economy continues to grow. Also contributing to economic growth is the region's highly-educated workforce.
This being said, my prognostication for 2015 is positive. We should all calendar this article for this time next year and see how my crystal ball performed.
Stay tuned...
Ralph Perna is an executive managing director at Newmark Grubb Knight Frank, Melville, N.Y. Tags: