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Old 05-16-2006, 09:17 PM
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Post Increasing rental rates have slowed the office leasing market

LONG ISLAND, NY-Increasing rental rates have slowed the office leasing market here. Leasing cooled off in both Nassau and Suffolk counties, according to a number of area market reports. However, Long Island still has the lowest availability rate among the major suburban office markets in the New York Tri-State region.

“Despite some weakening, there is price rise in the suburbs,” says Joseph Harbert of Cushman & Wakefield. C&W stats say that as rental rates continue to climb, the office market velocity slows. The firm points out that “future construction and capital improvements on existing buildings continue to fuel the increasing rental rates, while simultaneously flattening vacancy rates.”

According to CB Richard Ellis’ First Quarter 2006 Long Island Office Market Report, the area posted just 330,000 sf in total leasing activity. In Nassau County, total leasing for the first quarter totaled 214,000 sf, down from the 353,000 sf leased during the previous quarter. Consequently, the market experienced negative absorption of 40,000 sf. Following a strong fourth quarter, which netted 279,000 sf of positive absorption, Suffolk County returned to negative territory. The office market posted negative absorption of 108,000 sf on just 116,000 sf in total leasing activity.

The overall office vacancy rate for Nassau and Suffolk counties was 11.07% for the 2006 first quarter, according to Sutton & Edwards Inc./TCN Worldwide. That compared with 10.42% at the end of the fourth quarter last year and 10.2% in the 2005 first quarter.

“There has been a flight to quality,” says Sutton & Edwards president Alan Rosenberg, noting demand for class A space remains strong with most newly constructed office buildings in the region have been completely leased or in the process of being leased. This, he said, will mean continued upward pressure on rents. “Tenants won’t object to pricing. They are willing to pay more.”

Asking rents climbed by more that $.50 to close the quarter at $28.45 per sf, according to CBRE. C&W notes that overall rents have increased 5.7% since the same time last year.

CBRE points out that there is an abundance of class B space on the market totaling 1.4 million sf, representing 67% of all the available space in Suffolk County. Rosenberg notes that the demand for class A space is leading owners of high-end class B buildings to upgrade their properties.

According to CBRE, speculative development was unabated, with developers beginning several new projects during the quarter. “Developers continue to demonstrate optimism as several have begun new speculative projects during the quarter,” according to the report. The firm also points out that a number of large deals in the pipeline should help leasing activity in the second quarter. Cushman officials note that one project is expected to deliver over the summer with only one prelease signed to date.

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