New York City's industrial market got off to a strong start in the first quarter of 2024, with above average leasing of 1.1M SF driven by a variety of tenant types.
Average asking rent for Class A properties jumped by 20% quarter-over-quarter, to $36.58 per SF, while average asking rent for all asset types increased 11% to $29.95 per square foot, according to CBRE's market report.
The surge in leasing was offset by a lack of net absorption—which came in slightly positive at 81K SF—keeping the vacancy rate in NYC's industrial market hovering at 4.8%.
"A robust development pipeline filled with Class A properties threatens to raise future vacancy," CBRE's report said.
The leasing velocity in Q1 was 29% higher than the two-year average. Tenants showed increased demand for mid-size spaces with eight deals over 50K SF.
A lack of large deals signed by third-party logistics providers and e-commerce companies continued in the first quarter. The most active tenants, which in Q4 2023 were in the manufacturing sector, shifted to a diverse mix including video production, government agencies, retail and wholesale companies and lessors of miniwarehouses, the report said.
"The gap in landlord-tenant expectations was wide enough to hamper Class A leasing," CBRE said." Tenants cut costs wherever they could and put off large expenditures. They hoped for greater landlord concessions and lower pricing, but Class A landlords are unable to budge on base rents due to underwriting."
There is a pipeline of 4.4M SF of industrial space under construction in NYC, most of it Class A space that will deliver by the end of this year. Only 35% of the new deliveries will be pre-leased, so there is a likelihood that there will be a glut of supply later this year.
Only one new warehouse development broke ground in Q1 2024, a 100K SF Class A space scheduled to be delivered in mid-2025. Projects earlier on in the approval process are delaying groundbreaking until new construction space is absorbed, CBRE reported.
Queens recorded the strongest net positive absorption in the first quarter, tallying 113K SF, while Staten Island posted a negative absorption of minus 38K SF.