Long Island year-end update and projections for the upcoming year 2016 - by Ralph Perna

It is that time of year again when we reflect on how and if our businesses grew, maintained and/or adjusted, and how we made it to December of 2015.  It is also a time for my year-end summary and my projections for the upcoming year 2016. Looking back on my year-end article of 2014, my outline and prognostication for the year 2015 appeared to be “right on the money.”  I forecasted a brisk, continued activity level and a reduction in the inventory of available buildings. Bingo. There was not only a continued and increase in activity, but an uptick in prices as well within both the sale and lease markets. Additionally, the available inventory of buildings for both sale and lease are now at the lowest level they have been in many years. There has been a continued exodus of companies from the Brooklyn, Queens and Bronx markets, where recoded prices for industrial building are being achieved. Apparently, the developers’ thirst for redevelopment has continued at a strong pace. The record level of sale prices in the Queens, Brooklyn and Bronx markets was the catalyst for  keeping the activity levels very strong for building sales in both Nassau and Suffolk counties, and also for elevating  prices.  In addition, landlords saw their inventory levels reduced. Because of the low level of available buildings for sale, companies had to turn to lease. Keep in mind that we are in our fifth year of expansion and many of the companies that prevailed through the 2008 financial meltdown now need additional space. Lease prices are also at their highest level in many years. For example, in the Hauppauge market, buildings are coming available at asking rents of $8.50 per s/f gross and higher, depending on the infrastructure of the building. The build-to-suit market, I would have thought, would have been more active. There are several projects on the boards and several in the discussion stages. However, the concern today with new construction is the cost of vacant land, which also saw increased price levels. The time frame for new construction optimistically in today’s world is at least 12 months. Realistically, however, it’s more likely to be 18 months and perhaps longer. Furthermore, the cost of new construction has increased substantially. Consequently, many buyers have found it less costly and more time efficient to purchase existing properties and renovate them rather than build a new one. According to the federal government, our national economy is expanding. This has raised the eyebrows of the federal reserve and consideration toward increasing interest rates. At this point, trying to predict how an increase in interest rates will affect both our domestic economy and global markets would be pointless. It won’t be clear for months. So with this retrospective in view, what is my prognostication for 2016?   I believe there will be continued activity.  Companies that have been active on the market will close deals both on a sale and lease basis. I do project that activity will start to level off towards the end of the second quarter and into the third quarter.  Prices will continue to inch up and that will be a factor in the slowdown of activity, along with a very tight available inventory market.  Further fueling uncertainty will be the 2016 presidential election the results of which can be a game-changer. For the most part, I do not see much of a change in the economy in the coming year, other than a slowdown in activity and prices that will remain flat. I think that is relatively good news. Last, but not least, another issue that will certainly have an effect on companies expanding in the coming year will be the institution of the $15 per hour minimum wage. Experts are saying this will not only contribute to an economic slowdown and increasing prices for goods and services, but also reduce employment. “After a fifth year of expansion, how much longer will it last?” Stay tuned... Ralph Perna is the executive managing director of Newmark Grubb Knight Frank, Melville, N.Y.