Potential Shifts in Occupancy: Long Island's Record-Breaking 620,000 SF Delivery

Retail Market Overview: Absorption and Occupancy Levels

As of Q3 2023, annual net absorption in Long Island’s retail sector totals 1 million SF. This figure surpasses the previous year’s 640,000 SF, partly thanks to Walmart’s move to The Shoppes at the Boulevard in Yaphank. The market has benefited from relatively modest levels of new supply since 2018. Consequently, vacancy rates have consistently stayed below 4.5%.

Future Outlook: Stability Despite Increased Deliveries

Despite a surge in deliveries this year, occupancy levels will likely remain stable. While leasing activity has slightly declined in the first half of 2023 compared to last year, it likely will not significantly impact absorption levels in the upcoming six months. According to CoStar, vacancies will likely stay stable through mid-decade, with limited new projects scheduled beyond this year.

Current Rent Trends in Long Island

As of the third quarter of 2023, average rents in the Long Island metro area are $33.00 per square foot. With improved occupancies recently, rents have risen by 0.6% over the past year. This growth rate marks a significant slowdown from the 4.7% peak in Q2 2022. Analysts forecasts that while vacancies will remain stable, rent growth will moderate and may turn negative by mid-2024.

Geographic Disparities and Market Performance

The highest vacancy rates among retail types on Long Island are found in shopping malls, which also command the highest rents at about $42 per square foot. Rents vary significantly across the region, with affluent areas in Nassau County often demanding higher rates. In contrast, Eastern Suffolk and other parts of Suffolk fall on the lower end of the rent spectrum. As the metro’s third most expensive submarket, Central Nassau sees rents approximately $8 per square foot higher than those in Southwestern Suffolk.

High-End Market Enclaves: The Hamptons

Notably, the affluent enclaves of East Hampton, Southampton, and Montauk break from the general geographical division of rent trends. Despite higher rents, mainly in densely populated areas like Garden City, tenants have signed the most expensive leases in these high-end vacation spots in recent years. The demographic and economic profile of the Hamptons closely resembles the wealthiest parts of Manhattan, attracting tenants willing to pay premium rents for access to a prosperous consumer base.

Development Trends in Nassau County

Over the last decade, Nassau County on Long Island has welcomed 12 large-scale retail developments exceeding 100,000 square feet. These have primarily been power centers and big-box stores like Costco, Target, and Walmart. Nassau benefits from a denser population and higher buying power than Suffolk County, making it a retail hub that draws shoppers from densely populated Queens County.

Ongoing Construction and Recent Deliveries

About 570,000 square feet of retail space is under construction on Long Island, which accounts for 0.4% of the existing inventory. Major projects underway include Huntington Commons, with 218,000 square feet, and Holmesview Commons, in Farmingville, offering 135,000 square feet. A notable recent completion, the Shoppes at the Boulevard in Yaphank introduced 310,000 square feet anchored by Walmart, alongside a fully occupied 104,000-square-foot addition to Commack Plaza, home to BJ’s.

Retail Investment Activity in Long Island

Over the past year, retail investors have been notably active in Long Island, with transactions amounting to approximately $1.3 billion. Investors have primarily focused on high-quality assets located in areas with heavy traffic, especially properties with a strong grocery store presence, capitalizing on the substantial spending power of the region.

Shift in Investor Sentiment in 2023

Despite the previous year’s robust activity, investor enthusiasm has waned in 2023, with a noticeable slowdown in sales volume. By mid-July, investors had only transacted $342 million, and if this trend persists, the total investment for the year could fall by 58% from the previous year’s $1.5 billion.

Highlight of Major Transactions

The most significant transaction in 2023 thus far has been the sale of the Riverhead Centre, a collection of nine properties purchased by Prestige Properties & Development Company for $71 million. The key asset in this portfolio, 1550 Old Country Rd., a 136,000-square-foot property entirely leased by Home Depot, was valued at roughly $176 per square foot.

Closing Thoughts

As we’ve seen, Long Island’s retail market is evolving, with significant developments and a shifting investment landscape. Despite the slowdown in 2023, strategic opportunities still abound, especially in high-traffic, grocery-anchored properties. For those looking to navigate these changes and capitalize on emerging trends, expert guidance is essential. Contact Lumicre for your investment needs and ensure you’re making informed decisions in this dynamic market.