Primed For Growth: How Long Island CRE Is Setting The Stage For A Prosperous Future

Its office sector might still be struggling, but Long Island’s life sciences and industrial markets are primed for growth.

The region’s office market is performing well in the Class-A and healthcare asset classes, while Class-B inventory faces challenges. However, Long Island’s industrial market continues to thrive, with warehouse, cold storage, e-commerce, biopharma and consumer products driving demand. 

Scott Berfas, senior managing director at Newmark, a leading global commercial real estate adviser and service provider, said that between the uptick in industrial construction and the continued demand for industrial and life sciences space, the market is expanding and will ultimately benefit the region’s offices.

“The increase in demand from users seeking to occupy space in the market has exponentially materialized within the last five years,” Berfas said. “Inherent to the nature of our industry is the potential for deals to fall through when met with macroeconomic headwinds, which isn’t unique to Long Island. But on the flip side, we’re hopeful this would bring more acquisition opportunities and construction activity to the market.”

Berfas talked with Bisnow about Long Island commercial real estate, including market fundamentals, asset performance and near-term outlook, highlighting the steady performance of the office market, specifically Class-A and healthcare. 

Bisnow: What's your view on the current state of the market in Long Island? 

Berfas: Challenges in commercial real estate are not unique to Long Island, and I’m of the perspective that the pendulum is swinging toward the return of office. The prevalence of remote and hybrid working models affects the demand for office space. Industries such as accounting are still navigating the balance between in-office and remote work, but this aside, we’ve seen an uptick in Class-A leasing activity.

The flight-to-quality movement has been solidified, which has driven landlords’ investment in capital improvement programs to lure the workforce back to the office. Personally, I find productivity levels are higher when there’s a physical workplace that provides the ability to collaborate and experience company culture. 

The industrial market has still remained relatively healthy. We're not seeing pandemic-level demand driven by the the Amazon effect. This said, I expect that interest in this sector will pick up again starting early next year, given the strong demand for warehouse and distribution facilities. 

Bisnow: How are supply chain or interest rate challenges impacting developers and owners in Long Island?  

Berfas: Supply chain challenges exist across the industry, nationwide. From a development perspective, the higher cost of materials, rising interest rates and financing are the primary factors impacting the ability to get deals penciled. 

In addition to increases in taxes and operating expenses on Long Island, another challenge we’re navigating is the finite amount of land that is available. The scarcity of available land should be a driver for the redevelopment of obsolete properties. 

There's a tremendous amount of wealth, industry and talent here, but as with other New York markets, most of the local regulatory zoning jurisdictions have many restrictions to building, and the administrative layers make development costly and timely. It is critical for developers, community leaders, local officials and civics to work collaboratively to drive sustainable, smart development and investment in Long Island’s infrastructure. I consider Tritec’s project in Ronkonkoma, Station Yards, to be the perfect example of the community working successfully with development. 

Bisnow: How can people pivot in this market?

Berfas: Compared to five years ago, the costs of construction and tenant build-outs for office buildings today are materially more expensive, which has become further constrained by the higher cost of financing. I can recall a time in the market when the funding of such installations was just looked at as an upfront deal cost by landlords, and with no out-of-pocket costs for the tenant. The cost of materials and labor has created constraints, but going back to my earlier point about market cycles beginning and ending, the industry will endure such challenges.  

Bisnow: What does Newmark see for the future of Long Island?  

Berfas: The outlook for Long Island is positive, especially in the industrial sector, where there's a healthy demand for space. This continues to expand, as there will be more redevelopment opportunities to convert different types of properties to warehouse distribution and cold storage. 

We’re seeing the reimagining of office space too. Some of the buildings are in good condition but need to be enhanced and modernized to suit the amenity-rich office environment that tenants want. Also, we need walkable downtown and mixed-use developments, which I believe will be more in abundance after the region sees some ongoing projects successfully completed. 

Finding unique ways to expand these industries on Long Island will help create a rich and diverse economy that can be sustained for years. At Newmark, we're excited about what the future holds. Our company continues to invest in state-of-the-art technology and best-in-class talent to service our clients.

This article was produced in collaboration between Newmark and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.