Current Trends

     Long Island's 4-year office market slide appears to be easing.  Even though LI’s office market may not be on the road to full and immediate recovery, things are not getting worse.     

     Specifically, Long Island’s 4th Quarter’s weighted average “asking” rent for office space stopped its 4-year slide and actually increased by a modest $0.30 per square foot to $27.90 PSF.  Likewise, over the same period, vacancy rates have stabilized at 13.3% from 13.4% with a modest (very modest) positive absorption of 30,000 square feet. 

     “The glass remains half empty, “however, for Nassau County landlords…maybe a lot less than half empty because during 2011 the Nassau office vacancy rate increased 100 basis points to 13.2% whereas Suffolk County’s office market vacancy rate decreased 180 basis points to 13.1%.  

     Interestingly, much of the absorption of Suffolk’s office space occurred within class-A office buildings whose vacancies exceeded the county’s average by tumbling by 220 basis points to 13.8%.  Apparently, Long Island’s office tenants are not only moving further east, but have taken advantage of the soft office market to “move up” to better quality office buildings.

Forecast - 2012

     Making a prediction is always dangerous, especially in today’s economy, but we believe Long Island’s office market is at this cycle’s trough. 

     How long will the bottom last?  Until we begin to see a rebound in white collar job creation, we expect the office market to remain “soft” with window of opportunity for office tenants to remain wide open through 2012.  Long Island’s office vacancy rate should remain within the narrow range from 12.0% to 13.0%.  Since there is virtually no new office building construction on the horizon and if the economy continues its gradual improvement, the vacancy rate should grudgingly decrease.

     In years past, the over flow from Manhattan helped sustain LI’s office market,...“as goes Manhattan, so goes Long Island.”  Unfortunately, technological change coupled with the development of the New Jersey side of the Hudson, have cut into any corporate exodus to LI.  Furthermore, as Wall Street adjusts to decreased revenues by reducing its labor force during 2012, Manhattan office rents should soften... no longer the incentive they once were to look elsewhere.

     Impact on Your Lease Negotiations

     If you are in the market for Long Island office space or about to renew your office lease, Long Island landlords will remain flexible when negotiating base rents, but not as flexible as 2011 because mortgagees are looking over their shoulders in an effort to protect their loans.  Nonetheless, “free rent” and enhanced work letters will continue to be the negotiating concession soft spots. 

Nassau vs. Suffolk

     Even though the respective vacancy rates for both counties are virtually the same, i.e., 13.2% vs. 13.1%, we remain partial to Suffolk because of its more diverse inventory of multi-story and single-story, self-contained office buildings.  The latter generally come with zero or modest loss factors and generally allow tenants to control their suite’s HVAC system.  Both features can reduce the overall cost of occupancy from 15% to 20% when compared to multi-story, multi-tenanted office buildings. 

     On the other hand, Nassau provides more strategic access to a skilled and professional work force.  Generally, if you decide to locate within Nassau County, you will be able to tap into labor pools extending from Brooklyn, Queens and out to mid-Suffolk County.  Generally, western Suffolk, i.e., the Route 110 corridor is the limit for attracting workers from Brooklyn and Queens. Accordingly, if your firm is dependent upon highly skilled and professional employees, Nassau County and, possibly as far east as the Route 110 corridor, should remain your location of preference.