NORTHEAST SNAPSHOT, MARCH 2005

Long Island Office Market

The office market on Long Island is currently strong and stable. Leasing and sales activity has been increasing steadily since 2003, highlighted by eight consecutive quarters of positive net absorption through year-end 2004. A number of large tenants have leased or purchased space throughout Nassau and Suffolk counties as a sensible alternative to the high prices in Manhattan. According to data provided by CB Richard Ellis, the Long Island market’s vacancy rate for direct space is below national averages, holding at 8.3 percent.

A few of the leases recently completed include L’Abbatte, Balkan, Colavita & Contina LLP committing to 39,000 square feet at 1001 Franklin Avenue in Garden City; Cygnus Business Media leasing 32,164 square feet at 3 Huntington Quadrangle in Melville; and International Money Manager’s 19,000-square-foot lease at 1000 Woodbury Road in Woodbury. According to Stanley Schuckman, president of Schuckman Realty Inc. in Woodbury, New York, high land costs curb new development and keep rental rates high.

“Prime office space rents are between $27 and $30 per square foot for small space and only a bit lower for large space,” says Schuckman. “Yet, with land cost running from $800,000 to more than $1 million per acre, coupled with construction costs that can exceed $125 per square foot excluding site work and soft costs, it’s easy to see the problem in this sector of the real estate market.”

These barriers, along with high real estate taxes, are limiting new office development on Long Island. “Office development on Long Island will continue to be sparse, simply because market rents are not high enough to support the high cost of new office development,” explains Schuckman.

Generally speaking, new development has been limited to conversions of industrial buildings or renovations of older office buildings.

Schuckman notes that the majority of new development on Long Island over the past decade has been residential, and demand for such projects still drives market activity. Of the few office developments currently in the works, some are part of mixed-use projects.

In Suffolk County, a 400-acre mixed-use project is in the planning stages. To be located between the Long Island Expressway, Commack Road and the Sagtikos Parkway in the northern section of Deer Park, this project is just north of a proposed 800,000-square-foot outlet mall being planned by Tanger. To the west, between the intersections of the Long Island Expressway with South Oyster Bay Road and Broadway in Hicksville, the Taubman Company from Chicago is planning an 800,000-square-foot upscale mall. And nearby, at the intersection of Old Country Road and Round Swamp Road in Plainview, Charles Wang, founder of Computer Associates, is planning a mixed-use project on 140 acres that will include an 800-unit residential component, an office and a shopping center.

While new office projects are few and far between, the Long Island office market has been performing well for some time and should continue to do so through 2005. Says Schuckman, “There is no question, the demand for property all across Long Island, from every sector of the market, will remain strong regardless of times being good or bad for the foreseeable future.”

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