Guess what is starting to emerge in commercial real estate? New construction

Over the last 18 to 24 months on Long Island, the trend of companies looking for space has been vibrant. This is evident in the accelerated absorption of available space both for sale and for lease. The market in the 40,000 to 65,000 s/f range, in particular, has seen a lot of the action. With the economy judged to be in good condition - which I believe will continue through 2014, there seems to be a lot of interest for companies to continue looking for space, primarily for sale. This will feed new construction along with a couple of other factors. The increased activity is a result of companies who survived the previous downturn and have expanded within their marketplaces. They now want to now capitalize on what were considered to be inexpensive industrial spaces. The growth of the economy, coupled with the low inventory of existing buildings and the fact that companies need to retool and expand for the future to remain competitive, has given them little choice but to consider building. Also driving emerging new construction are the prices of commercial real estate in the five boroughs. They are unprecedented. As previously mentioned, it is hard to believe the up tick in sale prices for existing buildings throughout the boroughs of New York. With little to no inventory available, the buildings that are becoming available in the five boroughs are being marketed at prices in the $150 per s/f range for industrial facilities. Personally, I am having a difficulty understanding that marketplace. You start to wonder, how can a company spend that amount of money for real estate and still be completive in their industry. Enter new construction. What also will bring new construction into the spotlight is the situation where you have well located buildings in the price range of $100 to $115 per s/f and then have to add on the renovation costs. In that scenario, new construction starts to make sense. In addition to gaining a brand new building built to your specifications, there's the allure of real estate tax abatements, a base for no sales tax on fixtures and materials for the building and, no mortgage recording tax through the local IDA offices. When you do the comparisons, new constructions certainly commands a hard look. New construction will especially start to make sense for companies in certain vertical markets. For example, it is appealing to, businesses in the pharmaceutical field, those with cross dock trucking facilities, heath care, and the latest trend sport complexes. In pharmaceutical, a large growth industry, unless the companies are buying the existing building at presumed under market prices, the extensive cost of infrastructure and gearing up to start production weigh heavily when considering new construction. There are other factors prompting an up tick in new construction. Spec buildings are also likely to drive an increase in new construction. This, however, may only be on rare occasion, unless self financing is involved. The banks may look the other way unless the property owner has a well-rated tenant in hand. Lower land costs are also adding to the lure of new construction. Additionally, there is a growing movement for buildings with 35' to 40' ceilings in owner-occupied facilities. In the 80s, when new construction was on a tear, the trend was for 22' to 28' ft. ceilings. The philosophy today is that building up is a lot less expensive that building out. In addition, material handling companies have developed new technologies and equipment enabling companies to more effectively handle the height which further adds value to the project. The only concern with new construction is time. Building a project from start to finish could take between 12 to 18 months. This schedule could be reduced if municipalities would streamline the approval process by reducing the time required to obtain permits and site plan approvals. This would also help companies prepare more prudently for their new construction projects. New construction adds value to several sectors of the economy. It generates, construction jobs, demand for building materials and equipment, and real estate taxes to feed our town and county coffers. There also is the trickle-down effect. All of this sounds good to me. Stay tuned. Ralph Perna is an executive managing director at Newmark Grubb Knight Frank, Melville, N.Y.