Long Island has long been one of the tri-state area’s most stable office markets and despite showing signs of softening during Q3 2018, there are still healthy indicators of strength. The Long Island office market posted negative net absorption of 154,000 sq. ft. during Q3, resulting in an availability rate of 11.2%, up from 10.8% during Q2 2018. However, the Q3 availability rate was still down from the 12% posted a year ago, which points to the market’s relative strength.
According to CBRE, conditions in Nassau and Suffolk Counties related to lease renewals, asking rents and job growth point to a bright future.
Renewed Commitment to Long Island Market
Leasing activity dropped for the second consecutive quarter during Q3 to 320,000 s/f, totaling 1.3 million /ft for the first three quarters of 2018. Companies’ re-commitment to space via renewals combined with smaller transaction sizes contributed to the low volume of Q3 leasing. In the absence of large new lease transactions during the third quarter, leasing activity was 33% below Q2 2018’s total and 37% below the five-year quarterly average for Long Island. This result may reflect a summer slowdown according to CBRE, as leasing activity is down only 13% from the same quarter last year.
Although the pace of activity moderated in Q3 2018, the market is expected to rebound with large transactions that will be completed over the next few quarters. There is a high level of activity among tenants currently looking for space in the market and over 150,000 s/f of existing vacant space will likely be absorbed.
Average asking rents on Long Island inched up over the year, reaching $27.08 per s/f during Q3. While average rent is historically static, it has increased 1% since Q3 2017. Leasing activity slowed during the third quarter, with fewer mid-to-large sized deals, which contributed to the quarter’s negative absorption. Q3 2018’s total leasing activity was 320,000 s/f compared to last quarter’s 477,000 s/f, a 33% decrease.
Job Growth Remains Strong
Job growth continues to be a driving force in market stability on Long Island. Despite negative absorption, job gains in Long Island’s professional and business services and educational and health services resulted in a decrease in the unemployment rate, which dropped to 3.8% compared to 4.6% a year ago. According to the New York State Labor Department, the number of private-sector jobs on Long Island increased over the year by 15,000, reaching 1,179,100 total jobs in August 2018. This is another sign of the continuing positive economy on Long Island.
The drop in the year-over-year availability rate and the addition of 15,000 private sector jobs are all signs of a healthy market. The shifts on Long Island are not so dramatic and job growth remains strong, making Nassau and Suffolk counties smart places to do business.
Janet Wachter is a senior research analys at CBRE Long Island, Melville, N.Y.