Year-end update - anyone’s guess? If politicians work together, I expect/hope for a positive 2019 - by Ralph Perna

February 05, 2019 - Long Island
Ralph Perna,
Newmark Knight Frank

As you close the books on 2018, consider what an interesting year it has been. Our President never ceased to amaze us. There were ongoing confrontations with both houses of Congress. Further, the raising of tariffs placed companies, which depend on importing goods from China, in extremely challenging positions on their heels while they tried to determine their next move. Mr. Trump’s persistent negotiating skills, however, do seem to be working and I believe these tariffs will become a thing of the past. 

Up until October, 2018 seemed to be on track for another positive growth year and for many, optimism was prevailing.

The industrial real estate market continued to thrive with brisk exit activity and building prices rising.  Contributing to the continued rising prices was the short supply of available buildings for sale, particularly in Nassau County. Low interest rates were another factor driving activity and purchasers to the banks to lock in these favorable rates. Banks continued to be very aggressive, in most cases holding interest rates below 5% on a ten-year fixed basis.

The leasing market was not as vibrant as the choice by expanding companies was always to purchase. 

Major landlords throughout Long Island recorded high occupancy levels. In my opinion, however, existing buildings in the 20,000 to 40,000 s/f range have not been as active, especially in Nassau County. This was due largely to the lower rental rates in Suffolk County. Generally speaking, rental rates in Nassau were in the $15 to $17 per s/f range compared with $3 to $4 per s/f less in Suffolk County for comparable properties.  What is interesting about this is there are now several buildings coming online based on speculation or on a spec basis. For example, Lincoln Equities is moving forward with 190,000 s/f in Hicksville. Heartland in Edgewood is advancing with 230,000 s/f and Harts Mountain purchased the Newsday facility in Melville, and will proceed with up to 500,000 s/f. Then, there is Rubies’180,000 s/f.  The prices for these high ceiling industrial warehouse properties will range from $15 to $20 per s/f.  It is true that companies will require less space than they anticipated because of the high ceilings, but still this brings Long Island to a new level. This has been by far the largest amount of spec buildings to come on the market that I can remember. The strange thing is, I have a 125,000 s/f, high-ceiling space, one block off the Long Island Expressway, with great loading accessibility and a price substantially less than the new buildings on the boards, and the activity is not as vibrant as I would have expected.

The biggest unknown, which I have mentioned in a previous article, is what impact the new Amazon headquarters will be the on the market, and how will it affect the industrial market. It may take up to two years to learn the answer. You may recall that, when the Amazon Long Island City headquarters was announced, protesters came out in numbers. It appears they are making more noise now and placing pressure on the state to rescind the incentive package provided.

The facts and statistics are that economically, we are in good shape.  Unemployment is at record low levels, corporate profits are up, capital spending on R&D is pointing higher, and the new minimum wage is now in effect. 

So what are the unknowns? There is the volatile stock market which has an effect on people’s motivation to expand and spend money, potentially rising interest rates, if the federal reserve slows down raising interest rates and the longest government shutdown in history which, at this writing, is now in its 22nd day, leaving   800,000 people without paychecks.  This can certainly have a strain on our economy.

With all this being said, if the politicians work together to maintain a positive economic atmosphere, I’m expecting and hoping for a positive 2019. Happy New Year and stay tuned!

Ralph Perna is an executive managing director at Newmark Knight Frank, Melville, N.Y.

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