NYC Industrial Market Maintains Momentum

 NYC’s industrial market maintained the momentum of a banner year in the fourth quarter with a 106% surge in leasing velocity to 1.5M SF, and more than 600K SF of net positive absorption.

The Big Apple notched an annual leasing velocity of 3.7M SF in 2022, a 23% increase over the total for 2021, according to CBRE’s Q4 market report. The leasing activity in Q4 was 32% higher than the three-year average for NYC.

Class A deliveries—there were two warehouses encompassing 1.1M SF in the fourth quarter and there are 10 more under construction that will bring nearly 6M SF of new space—are expected to keep leasing activity strong and perhaps even move the needle higher on asking rates in NYC.

“Class A completions in 2023 are expected to contribute to even more robust leasing while exerting upward pressure on average asking rents,” CBRE’s report said.

The dichotomy between Class A space and everything else was apparent in the average rents in Q4: the average asking rent for all industrial asset classes in NYC decreased by 1.7%, compared to Q3, to $25.06 per SF; the average asking rent for Class A properties increased 1.1% quarter-over-quarter to nearly $30.

In a YOY comparison, average asking rent citywide for industrial space increased 12% in 2022.

While national logistics networks have unclogged themselves from the choke points experiences in H1 2022—when the tightest industrial markets, including NYC and SoCal’s Inland Empire had vacancy rates of less than 1%—demand for Class A space is keeping pace with new supply in NYC.

The Class A availability rate decreased 120 bps to 6.3% while the availability rate for all industrial asset classes went up a tick to 6.8%. Both of the new Class A warehouses delivered in Q4 were pre-leased. The overall vacancy rate rose 30 bps to 5.6%—a 130 bps surge compared to the end of 2021.

A total of 84 lease and renewal transactions were signed in the fourth quarter, with most of the activity in Brooklyn (49 transactions encompassing 645K SF) and Queens (28 transactions encompassing 460K SF).

According to CBRE, Queens experienced a 294% surge in quarter-over-quarter leasing velocity, with a significant portion of the activity in the Maspeth and Long Island City submarkets.

However, the Bronx lagged behind the other boroughs with net negative absorption of minus 160K SF, most of it concentrated in the Zerenga submarket, pushing the availability rate in the Bronx up to 9.3%.

The projects under construction have a strong prelease rate of 67%, CBRE reported. Asking rents for available space at these projects range from $28 to $39 per sq. ft. Additionally, thirteen buildings totaling 3.4 million sq. ft. are planned or proposed.

However, no new industrial projects broke ground in NYC in the fourth quarter, which CBRE attributed to a “market pause during the current financial and economic uncertainties.”