Credit is now a major factor when deciding on a new industrial tenant - by Tod Buckvar

Long Island’s industrial market currently has a vacancy rate of 3.6%. As remarkable as this seems it may be even lower. Landlords are becoming more and more selective with the tenants which they accept. If you are looking to rent a building and there are five available, you may only be eligible to rent three of those based upon your company’s financial statements . High demand has created additional hurdles for tenants looking for space. Property owners are taking fewer financial risks when evaluating new tenants. Brokers are looking for companies with a good financial history and financial documentation to prove it. This is making it difficult for startups businesses, smaller tenants, and businesses impacted negatively by COVID-19. One major commercial landlord went so far as to decline the tenancy of a prospective tenant because they were the recipients of a PPP Loan during the height of the pandemic. This additional burden may prove to be the last straw for some smaller companies. Property owners are no longer willing to take risks renting and will only rent to companies who have great credit and are fiscally sound. Once again making it harder for the little guys who are just starting out and easier for the Fortune 500 company.

Other impacts of a strong industrial market are higher rents and historically low vacancies. The national vacancy rate of industrial is at 4.3 % which is lower by 1.3% than 2020.The increased demand has also significantly impacted the rental pricing with an average increase of 8.6% across the country. Construction has not kept pace with the increased demand which has forced tenants to obtain space without regard for the price.

How will this combination of a shortage of properties plus tougher tenant financial reviews and higher rents impact small business. On Long Island a very high percentage of tenants are the proverbial Mom and Pop operations. Will they be squeezed out of the market by the above factors? One possibility is the construction of more industrial buildings. The vacancy rate almost demands it. The next 12 to 18 months will see some interesting trends in this market.

Tod Buckvar is a principal at JSR Capital Group, Melville, N.Y.