2Q2015 Lee & Associates Long Island City Market Report

LEE NYCThe Long Island City Market Report2Q2015

THE LONG ISLAND CITY MARKET REPORT

2 LEE & ASSOCIATES NYC

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Net Absorption Availability Vacancy

69.3% 58.5%

54.5% 53.8% 53.5% 53.5%

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Rent Discount

42.5% 54.4% 52.7%

47.5% 47.3% 49.1%

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Rent Discount

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69.3% 58.5%

54.5% 53.8% 53.5% 53.5%

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42.5% 54.4% 52.7%

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Rent Discount

33.2% 38.9%

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City Hall|Insurance Dist. Financial District World Trade Center

Downtown vs Long Island City Discount

Rent Discount

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Long Island City Industrial

Average Asking Rent Availability

OFFICELong Island City’s proximity to Midtown and Midtown South provides a comfort to prospective tenants that are seeking large open spaces, while getting offered a major discount of 59%. The overall asking rent in LIC is $32.66 compared to Midtown’s $78.85 and Midtown South’s $64.87. With easy access via six subway lines, Long Island City as an office submarket has picked up attention citywide. Subjectively, according to some, one may consider this as an extension of the Manhattan office market. Interestingly, LIC office rents are forecasted to continue increasing with more industrial properties converting their spaces into flex use. From a Class A perspective, Long Island City would rank sixth in a national market study, right after San Diego’s $37.16 and before Seattle’s $38.22 price-per-square-foot asking rents. LIC’s limited Class-A inventory is currently asking $37.51 per-square-foot.

Actual office and flex-property inventory is approximately 12.5 million-square-feet; nearly half of what Downtown Brooklyn (DUMBO, Vinegar Hill, Brooklyn Heights and Downtown) has to offer. Long Island City’s office availability rate increased 20 basis points end of Q2 to 9.4%. This would be the third consecutive quarter it has increased and we forecast it will continue this trend with more space coming onto the market. In half-a-year, Alma Realty will delivery North 30, a 595,000 SF Class-A property located at 30-30 Northern Blvd. Office rents there are currently averaging $35 per-square-foot.

Silvercup Studios will commence construction on a 655,048 SF Class-A office complex that will be known as Silvercup West. The project will be right off the Queensboro Bridge in the Queens Plaza vicinity. Further northwest, Jans Realty will begin construction for approximately 50,000 SF of Class-A office at 37-14 36th Street.

continued on next page

OFFICELIC MARKET REPORT 2Q2015

THE LONG ISLAND CITY MARKET REPORT • 2Q2015

SNAPSHOT TRENDS

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69.3% 58.5%

54.5% 53.8% 53.5% 53.5%

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42.5% 54.4% 52.7%

47.5% 47.3% 49.1%

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Rent Discount

Online clothing retailer Gwynnie Bee signed the most notable office deal this quarter at the Factory, signing the fifth floor space for 12,702 square feet. Invesco’s The Factory, located at 30-30 47th Avenue, also leased out the fourth floor to Applied Research & Consulting. The marketing consultant left their space at 2 Gansevoort in Hudson Square to expand their operations in LIC. TAMI tenant’s interest in Long Island City will expand with similar-like Midtown South properties they’ve grown accustomed to, popping up across the East River. Per the average market rent in Hudson Square and Long Island City, the consulting firm gained approximately a 52.7% rent discount. (See charts for a comparison on Manhattan’s submarket overall average rents and the discount a tenant gets when moving to Long Island City).

OFFICE continued




Asking Rent .................$32.66

Availability Rate .................9.4%

Vacancy Rate ......................5.8%

Under Construction ...........595,000 SF

The retail state in Long Island City is in constant lookout for more space. There’s a shortage of retail in the submarket that can accommodate its growing population and resident activity. Q2 saw a slow leasing activity in retail. One of the major deals took place with Italian restaurant, Rocco Sacramone signing a lease at TF Cornerstone’s 46-10 Center Boulevard. The restaurant took 7,800 SF and a 2,200 SF outdoor terrace. According to Long Island City seasoned retail expert and Lee & Associates NYC Principle, Brad Schwarz, rents on the three main retail corridors are asking $70 to $100 per-square-foot on the ground floors.

• Jackson Avenue | Ground Floor Asking Rents: $70 - $80 per-square-foot

• Vernon Boulevard | Ground Floor Asking Rents: $75 - $100 per-square-foot

• Queens Plaza | Ground Floor Asking Rents: $85 - $100 per-square-foot

Q2 saw less than a dozen retail signings ranging from 600

to 11,000 square feet. Babies of America Daycare signed a ten-year lease for 2,500 SF at 46-07 Vernon Boulevard. The reported base rent for the ground floor space was $44 per-square-foot. Danny Brown Wine Bar & Kitchen leased 2,000 SF for 12 years. The reported base rent for the triple-net lease was $60 per-square-foot at 26-20 Jackson Avenue.

RETAIL

INDUSTRIAL


Long Island City is abundant in industrial properties scattered across every corner of the submarket. There are currently close to approximately 900 industrial buildings. According to rental rates captured throughout a ten-year span, rates have come back down to $11-12, as they were ten years ago. During 2014, average asking rates increased to over $20. It’s unsure if this is a direct correlation to office demand in full-scale industrial properties supplying the space. One thing that’s clear is that industrial asking rents have remained in the $10-20 currency scale for the past decade. Unlike other real estate sectors like commercial retail and office, in addition to residential sales and rentals; the industrial market in Long Island City remains steady. With an influx of office seeking tenants, we forecast the availability rate to decrease over the span of a year. Current

33.2% 38.9%

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Downtown vs Long Island City Discount

Rent Discount

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Long Island City Industrial

Average Asking Rent Availability

asking rents are averaging between $11-13. End of Q2, the vacancy rate was hovering at 3.1% and the availability rate was at 6.2%.




C&G Empire Realty ended the quarter with the largest development purchase on Block 437, located across from One Court Square. Acquired from Citigroup, the site comprised nine lots bounded between 23rd Street, Crescent St, 44th Rd and 44th Dr. Plans for the .87 acre site are currently undisclosed. The potential of 780,000 square feet of buildable space will most likely delivery a hybrid mix of commercial offices and residential condominiums, to meet the increased demand of Class A office space and an increasing population. The site sold for $143 million.

Eighth blocks away, the MTA sold off 458,000 square feet of air rights to Property Markets Group and the Hakim Organization for $49.1 million. The joint venture plans on developing a residential building with expectations that they’ll deliver and maintain an open public space and an expansion of the Queens Plaza subway station. The station has increased its annual ridership close to 25% in five years.

Adam America Real Estate purchased their first Queens redevelopment site at 22-12 Jackson Avenue. The site will make way for a condominium tower, tapping into the demand for additional residential inventory. The site was sold by Plaxall Inc. for $43.5 million. With LIC’s abundance in industrial space, developers will continue to either convert or demolish many warehouse buildings to pave the way for a LIC skyline closely mirroring Manhattan’s. At 27th & 42nd Rd, Brooklyn’s Rabsky

Group purchased a development site for $39 million (currently an industrial property). Simon Dushinsky will most likely deliver another residential tower onto the LIC landscape.

In a sale leaseback between Wailing Management and the Criterion Group at 31-08 Northern Blvd, we should see another potential residential development by Criterion. Wailing sold the 14,549 SF industrial building for $1,925/PSF or $112 per buildable SF (250,000 SF buildable).

Vornado closed on the Center Building, located at 3300 Northern Blvd from a partnership between Madison Marquette and Perella Weinberg Partners. It sold for $142 million ($319 per-square-foot). Madison and Perella acquired the building in 2012 with a 12% vacancy. Vornado is capturing the building at 2% vacancy. Major tenants of the Center Building include Quadlogic Controls and the New York Metropolitan Transit Agency.

SALES

HOUSING SUMMARYThe demand for luxurious housing in Long Island City has taken off. In the last ten years, overall asking rental rates have risen by 49% to close to $3,200 per unit. We’re currently seeing a $4.44 per-square-foot rental rate in the submarket with an abundance of housing units coming onto the market in the near future. End of Q2, there were close to 6,000 units under construction and close to construction phase. This is the highest number of housing units in multi-family buildings with increases every quarter since the beginning of 2013.

In just a short time span, investment sale of multi-family assets

have increased with the rising popularity of Long Island City,

with more and more former-Manhattanites calling it home. Since

2013Q2, price per unit in multi-family sales have increased

151% to $453,782 per unit.

We should see 42 major residential projects delivered to the

market during the years 2016-2018. This figure should only be

taken as a minimum, since more developers and investors are

noticing the upscale potential Long Island City offers to their

strategic emerging portfolios.



Lee & Associates NYC600 Madison Avenue, Third Floor

New York, NY 10022 | 212.776.1200www.leeassociatesnyc.com

James WachtPresident

[email protected]

Peter BrausManaging Principal

[email protected]

Henry AbramovResearch Manager

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Select photos courtesy of Long Island City Partnership

2Q2015 Lee & Associates Long Island City Market Report

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Transcript of 2Q2015 Lee & Associates Long Island City Market Report