New York City Industrial Market

Historically, New York City’s boroughs have been home to a wide range of industrial, manufacturing and warehousing businesses because of proximity to major roadways, Long Island, New Jersey and Manhattan. But even with more than a century of progress and success, these types of businesses are finding that buying — and even leasing — the right industrial space is harder than ever.

The recent and dramatic rise in property values throughout New York, borough-wide rezoning and the proliferation of residential development are all factors that have made the industrial market tighter than ever, with vacancy rates hovering in the low-single digits.

Industrial property owners are not developing new properties, but rather improving and expanding their existing properties. Renovations and capital improvement programs, including raising ceiling heights and adding floors consistent with zoning, are just some of the ways owners make their properties more applicable to a wider range of manufacturing capabilities and can command higher rents or sales prices.

Recently, Kalmon Dolgin Affiliates arranged the sale of a single-story warehouse property in East Williamsburg, Brooklyn, for $12 million. The buyer plans to add another level, a rooftop parking lot and transform the first floor into a fashion showroom with an expansive lobby area. This property was attractive for its excellent potential, conversion capabilities and prime location.

Following rezoning in Brooklyn, Queens and the Bronx, the industrial sector has shifted back to historic neighborhoods that have been home to warehousing and storage facilities throughout the decades and are largely untouched by residential rezoning.

Some of the most popular enclaves for industrial and manufacturing space today include East New York, East Williamsburg, Bedford-Stuyvesant, Spring Creek, Sunset Park and Canarsie in Brooklyn, Richmond Hill and Maspeth in Queens, and Hunts Point in the Bronx. Each of these industrial enclaves offer proximity to the Long Island Expressway, the Brooklyn-Queens Expressway and other major highways.

For light manufacturing, the Brooklyn Army Terminal and Bush Terminal Industrial Complex facilities in Sunset Park promise dividends in the coming years to both the city and light manufacturing users, who can take advantage of the excellent access to the Brooklyn-Queens Expressway, the Belt Parkway and the Gowanus Expressway, as well as all public transportation.

Both complexes — and many of the warehouses throughout these areas — are located in a New York City Empire Zone, offering tax and energy incentive programs for qualified/relocating businesses within these defined areas.

Warehouses that offer very close access to these roadways and the Manhattan hub can command $12 to $14 per square foot, while some of the more out-of-the-way areas still offer space at approximately $8 to $10 per square foot.

Unlike neighborhoods such as Williamsburg, Greenpoint, Long Island City, Astoria, and other neighborhoods whose character has been redefined by residential development, re-zoning has kept intact the industrial park history of Sunset Park, East Williamsburg, Maspeth and other areas. 

Kalmon Dolgin Affiliates continues to see an ever-tightening industrial, warehouse and manufacturing market as high-quality space grows harder to find in the New York City area. This unprecedented activity has piqued interest in major metropolitan areas close by, including Philadelphia, Boston, and other markets where lower prices and high-quality spaces are more readily available.

— Neil Dolgin is executive vice president at Kalmon Dolgin Affiliates.

State of New York City Sales Market

The issue of the day pertaining to the building sales’ market in New York City seems to be the current state of the credit markets. All types of lenders are implementing more conservative underwriting policies. This is causing financing to become slightly less readily available and is necessitating more equity for transactions, a positive and healthy development for our markets.

The interest rate component of the market has such a significant impact that it is something we track very closely. Fortunately for the building sales’ market and unfortunately for the country, we have recently seen the weakest domestic growth since 2002. In the first quarter of 2007, growth was only 1.3 percent (on an annualized basis), and it is expected that growth will be less than 3 percent well into 2008. This slow down in growth is representative of a weakness in consumer spending, which accounts for 70 percent of our economy.

Fed Chairman Bernanke’s major concern is inflation. In April, the inflation data on an annualized basis was down to 2.3 percent from 2.5 percent in March. Without taking into consideration appreciation in rents, inflation was only 1.3 percent. The reason is that there is actually disinflation in certain segments of the economy, such as airfares, clothing and automobiles. The Fed’s comfort zone on inflation is 1 percent to 2 percent and we are rapidly approaching this zone. With inflation in check, there is absolutely no reason why interest rates should rise.

Another important factor affecting the market today is the continued escalation in rental prices across all product types. As rents and room rates have increased, the low supply of available space in the city has prompted developers to reposition some developments from residential to hotel or office. This supply will not be delivered to the market in time to inhibit climbing rents throughout the next 12 months, which is continuing to place upward pressure on building prices. This same dynamic is affecting the retail space market. Retail condos are among the hottest of all product types today, with prices reaching into the several thousand dollars per square foot range in some areas. The hotel segment in the market continues to grow as hotel construction is booming all over the city.

Anticipate continued strength in the market throughout the balance of the year and keep a watchful eye on the political horizon in early 2008, as that variable may have a most profound effect on the future health of the New York City marketplace.     

— Robert Knakal is chairman and founding partner of Massey Knakal Realty Services.

New York City Retail Market

With retail rents spiraling upward by as much as 120 percent from just a year ago in some areas of Manhattan, you might think leasing activity would come to a screeching halt.  But, like the office market, the Manhattan retail market is on fire.  From Carnegie Hill to Battery Park, retailers are paying more now than ever to secure some of the limited available space.  It is anybody’s guess when — or if — the market will slow.   

From purely a supply and demand point of view, dwindling supply is stoking the fire. In the past year, available Manhattan retail space has shrunk by more than 8 percent.  As retailers’ leases near their expiration dates, many who test the waters for new space are opting to renew and stay put, when possible.   

Even neighborhoods previously thought of as secondary markets — Flatiron, Gramercy, Park Avenue South — are in just as much demand as Midtown. While tenants were previously forced to move to these locations due to high rents in other parts of the city, these locations have now become the location of choice for retailers and commercial tenants.

According to the Real Estate Board of New York, the East Side is still the place that tenants want to be, despite the average asking rent of $155 per square foot. (Compared to a city-wide average of $103.)  With a strong spring full of retail gains across the board, retailers are willing to pay the increased rent to strengthen their presence in the city.  With the limited space, the competitive nature of the retail market will continue to thrive, ultimately increasing rents even more. 

From a broker’s point of view, it is truly hard to distinguish one neighborhood from another, as they are all facing the same fate — rapidly increasing rents, minimal vacancy and hungry tenants. 

Going into summer 2007, New York City’s retail market is booming and will not be slowing down anytime soon.  With an ever increasing population, New York City will remain the zenith for these retailers, who will continue to pay the price for these prime locations across the city.

— David Winoker is the president of Winoker Realty.

Nordstrom Looks for the Right Space in Manhattan

After months of speculation, Nordstrom has made a definitive step into the New York City retail arena. The department store recently retained New York City-based Madison Retail Group, a national leasing and tenant representation services firm, to provide site selection services for its flagship store in Manhattan. “Nordstrom’s East Coast and Northeast presence is increasing,” says Stephen Stephanou, a principal at Madison Retail. “They are opening stores in the near future in the Boston area and the company’s sense is that a location in Manhattan is a critical part of its engagement here on the East Coast.”  Virginia Pittarelli, also a principal at Madison Retail, notes that, “Like any other retailer coming to New York, Nordstrom has done its due diligence and its homework and now it has become a priority to actually enter the market.”

Not bound to one particular neighborhood or area of Manhattan, Madison Realty Group is looking for a site that will allow Nordstrom to achieve a high sales volume, but also brand themselves since it will be their flagship store in Manhattan. “As in any expensive urban environment, whether it is downtown Chicago or New York or Boston, it is more difficult to find space,” remarks Stephanou. “They are, by definition, older cities, and the real estate at this point is being used at its highest and best use, so it can be more problematic because you have to create an opportunity in a tight and expensive market.” Pittarelli counters that finding the right size that fits within the criteria can be equally challenging.

According to Stephanou, in a competitive market such as Manhattan, the key to finding the ideal space is to recognize and create the right opportunity for a department store like Nordstrom. “Unfortunately, in some areas that might be logical places for this type of department store, there might not be a beautiful building that says ‘department store for rent’,” says Stephanou. “There is no question that it either has to be a space that is created from something that is currently existing that needs to be retooled for retail use, or it needs to be a development opportunity in which there is a developer that would incorporate a store into some other kind of development be it office, hotel or residential.”

— Stephanie Mayhew

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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