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Long Island’s Future Looks Bright—As Long as Government Gets Moving

Aug 31, 2016

Despite difficulty building new projects, government red tape, and the threat of NIMBY-ism, real estate professionals are bullish about Long Island, as heard at the recent Long Island State of the Market event hosted by Bisnow and EisnerAmper, at the Garden City Hotel.

EisnerAmper tax partner Lisa Knee (just cited as a Bisnow New York Power Woman) moderated the panel, which featured Blumenfeld Development Group president Ed Blumenfeld, CBRE senior vice president Phil Heilpern, and Kimco Realty Northeast region president Joshua Weinkranz.

It’s been one of the tightest real estate markets for Long Island office, retail, and industrial in recent history. Knee asked each panelist for an overview of each sector.

Over the past few years, the office market has really changed, noted Heilpern. For the first time in his over 30-year career, he’s witnessed steady vacancy rates below 10%—where 10% is considered equilibrium. This has been evident throughout the entire sector in Nassau County, as well as Suffolk County’s Class-A buildings.

“We’re shifting toward a landlord’s market,” he said. “Most of the growth in the past three or four years has been in the healthcare industry, and in Nassau County this means the lease or purchase of about 3 million square feet of office space. Our total market is only 41 million square feet, so that’s almost 10% of the market.”

There isn’t much planned on the spec side, he continued, so we will continue to see vacancy rates drop. And asking and taking have risen above $30/SF for the first time he could remember, with three or four buildings achieving $30/SF-plus rents on an effective basis. “Barring some unforeseen economic disaster, the office market will continue to improve.”

Retail will also benefit from healthcare growth, added Blumenfeld. His firm just added a 17,000 square-foot dialysis center to a project in Manhattan and is doing 20,000 square feet worth of healthcare space in Queens. That growth will trickle out to Long Island and may be a way to fill some vacant big box spaces.

Despite closures from major retailers—including Sports Authority, Sears, and grocery stores from the A&P bankruptcy—retail is so tight that when a space comes to market, there’s always a line of tenants waiting.

“We see it as an opportunity, not necessarily a risk,” noted Weinkranz. “A number of new retailers are looking to enter the market, and they can reinvigorate a property that was struggling.” For instance, a high-volume health club or fitness center would drive more traffic than a grocery store, since users visit three or four times a week versus one trip to the grocery store. In turn, that drives traffic to other retail tenants. Among the categories growing are discount and health and wellness concepts.

The residential phenomenon in Queens and Brooklyn has positively impacted the industrial market, added Heilpern.

“The users are selling their buildings for $300, $400, or $500/SF and they need somewhere to go, so they’re moving out east,” he explained. “They’ve filled up Nassau County, where vacancy rates are under 1%. They’re now filling up Hauppauge, Central Islip, Brentwood, and Edgewood. Soon, they’ll have no place to go, so the next leap will be Yaphank. There’s been reluctance from industrial users to make that leap from Exit 58 to 66, but it’s where it will happen.”

Knee referenced the lack of land across Long Island. “Some municipalities are building up,” she said. “Will those projects go through since there’s no way to build out?"

 “Long Island has to see that type of development,” Heilpern added. “We simply don’t have the sprawl or available land to build the type of suburban development you see when driving past Broadhollow Road on the Expressway in Melville. We can’t continue building like that.”

Smart developments, he continues, will be built near train stations that allow workers from Manhattan, Brooklyn, and Queens to commute to Long Island. Mineola is a good example, and the Town of Oyster Bay needs to allow more density in Hicksville. “Office tenants want to go to those locations. We only have two or three locations on Long Island that work. We need to go up, be more dense, and be careful where we go.”

“When you can get Hicksville approved, will you call me?” Blumenfeld asked to audience laughter. 

Blumenfeld recalled when he was growing up on Long Island, it was known for growing and exporting potatoes. “Now we grow and export NIMBYism,” he said. “It carries through to our local government. We have 600 different municipalities and zoning authorities with people who don’t know what they’re doing. In order to have good growth—whether retail, office, or residential—we need to get smarter politicians and civil servants.”

That begs the chicken-or-egg question, Knee noted. “Are people needed first, or the housing?”

There really isn’t an answer to the chicken-or-egg question, Blumenfeld replied. “People aren’t going to come live here if they don’t have a place to shop and have fun. The employers aren’t going to come for office without employees living here. So it’s a cycle,” he said. “We have to work in concert with each other.”

Development that has happened in places like Patchogue, Mineola, and Rockville Centre are great, he continued, but now they have to go a step further and embrace retail. And you can’t fight against big boxes to keep communities like Moriches rural. The world has changed, and Long Island has to change with society. Part of the problem is the government — time is money to a developer and tenant, he explained, and tenants are not going to wait 18 months to get something approved and another 18 months for something to be built.

“We’re going to lose the marketplace,” he warned. 

Knee asked the panel whether the growth we see on Long Island is homegrown, or if we have the ability to attract companies and employees from the city.

Companies want modern office space that is collaborative and attracts employees, Heilpern said. While Long Island has vacancy rates 5% lower than nearby suburban markets, it’s not attracting companies from New York City. Instead, those tenants are choosing New Jersey, which offers much better benefits packages. Much of the growth here is internal, and it’s tough for Long Island to attract tenants from out of the area.

“A lot of it has to do with public transportation,” Weinkranz explained. “As an employer, we’re looking for younger talent, and the main challenge is that a lot of the younger people live in Manhattan, Queens, and Brooklyn. When we interview them, they assume they’re going to work in our city office. But we are looking for employees in our Long Island office. They don’t want to come here or live here. They don’t have a car, and until you have that infrastructure in place, you’re not going to attract that younger workforce. That’s a big problem.”

The plan for a third set of Long Island Railroad tracks between Floral Park and Hicksville to ease the congested commute is also necessary, benefitting both commuters into the city and reverse commuters, Heilpern added.

“What do we need to get through the red tape and to get municipalities to be development friendly?” Knee then asked.

Blumenfeld said that they have to have the motivation and understand they’re promoting a better Long Island. “And a better Long Island means we can employ people, get them the services and housing they need, and get projects off the table. We have to have elected officials who are pro-development.”


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