Brokers Predict Strong Activity for Multifamily, Industrial Markets; Troubles to Continue for Office Sector in 2024

WHITE PLAINS—The consensus from the real estate broker panelists who participated at HGAR’s Regional Power Broker 2024 CRE Market Forecast on Jan. 24 at HGAR’s offices in White Plains was that most markets in the region will be active in 2024, with the exception of the office sector.

HGAR’s Regional Power Broker 2024 CRE Market Forecast was moderated by Bridget Gibbons, director of the Westchester County Office of Economic Development. The panel included Rand Commercial’s John Lavelle; Amit Doshi, Senior Executive Managing Director of Meridian Investment Sales; Sarah Jones Maturo, President of RM Friedland; Tom LaPerch, Associate Broker of Houlihan Lawrence Commercial; Shallini Mehra, Managing Director of Meridian Investment Sales; Adam O'Gorman, Owner of Nova North Commercial and Steven Salomone, Associate Broker with Houlihan Lawrence Commercial.

The various panelists agreed that the office market remains troubled although there is a movement to have workers return to the office more frequently and therefore reduce at-home policies. The trend of converting outdated office buildings to other uses, including housing, will continue, they said. Brokers contend that companies will be attracted to Class A-type office space, while properties rated at either B or C will have trouble attracting tenants, with some B-C properties being taken over by their lenders.

While still strong, many expect multifamily development to slow down as a significant amount of new product comes online in major metro markets.

The most upbeat of the broker forecasts was definitely Rand Commercial’s John Lavelle, who shared that Orange County’s industrial real estate market was strong in 2023 and is expected to remain that way this year.

“Quite frankly, business has been good the past few years. We have done very well, thankfully. Clearly far and away, the most active sector of the Orange County commercial real estate market is the industrial market.”

He continued, “In 2023 alone we had 3 million square feet of warehouse buildings under construction. That’s a really good year for us.”

Lavelle noted that of the 3 million square feet being built, a total of 2.4 million square feet are already leased or spoken for. While nationwide, approximately 25% of industrial space in development is pre-leased, Orange County’s rate is approximately 60%.

He said that industrial rents have “skyrocketed” in Orange County. Until recently, industrial rents in the county were stable at about $8 triple-net, per-square-foot. “We are now seeing very commonly rents in the $12 to $13 range and in 2023 and I know of two warehouse transactions where the rent was $14-a-square-foot,” Lavelle said. “Our rents are appreciating, although we are not as expensive as the rest of the (regional) market, so there is still opportunity.”

Another sector of the industrial market that is experiencing price appreciation is the value of land. Lavelle informed the HGAR CID gathering that developable industrial land parcels were selling for some time at $10 a buildable foot. In the last couple of years, land values rose to $20 a buildable foot and in some cases more than $30 a buildable foot. He related that two industrial land deals in Orange County last year netted $40 a buildable foot.

He noted that while in many markets of the country, there is little industrial land available and intense competition for the available properties, Orange County is bucking that trend.

“In Orange County, New York right now there are over 14 million square feet of new industrial sites being engineered and approved,” Lavelle revealed. He added that the significant industrial pipeline in Orange County represents “the fact that there aren’t any other sites left. That is every piece of dirt we got.” He said that 14 million square feet of industrial space in the pipeline represents approximately 20 years of approved sites (based on the normal 500,000 square feet of annual absorption) in the county.

In his predictions for 2024, Lavelle related that the Orange County industrial market “will continue to crank.” He said he was aware of at least 2 million square feet of new deals that have not closed as yet that are in the pipeline in 2024, in addition to the new development under construction.

With the 14 million square feet of potential new product in the pipeline, Lavelle wonders whether some of the national industrial real estate investment firms and property flippers that own product or land in the county will have the “staying power to carry those sites until they are sold. And if they don’t there will be some really cheap opportunities in the market,” he related.

Lavelle concluded his remarks by saying he expects industrial rents to continue to rise and he hopes that land values will begin to stabilize in 2024 in Orange County.

Some of the other major takeaways from the event included:

Meridian’s Doshi said that land values and investment sales were down approximately 50% last year in Manhattan. “I don’t see any light coming up in the near future,” he said. “Maybe it’s the rent laws, maybe it’s the legislation that the politicians are enacting.”

Doshi and Mehr reported that investment activity is brisk in the Bronx. He noted that multifamily values have soared from approximately $100,000 a door (unit) to $225,000 a door. Mehr noted that rent-stabilized properties are under water and not worth the amount of debt on the building. Affordable properties are also performing well in today’s market.

She pointed to the South Bronx as a market of opportunity in 2024 and beyond. Despite the lack of the 421a incentive, there are between 20 to 30 projects under construction that will bring approximately 5,000 units of mixed-income housing to the market.

She noted that the average multifamily rent in Manhattan is $4,300, in Brooklyn it is $3,500 and the Queens average is more than $3,000 a month. In the South Bronx, the average rent is $2,900 and most properties offer attractive amenities, water views and a 15-minute train commute to Manhattan,

Segments in the multifamily sector (non-rent-stabilized properties) performed very well. The industrial market was also very active, until e-commerce sales began to slow, Doshi noted.

He said that Class A office buildings in New York City did very well in 2023, while lower-rated B and C buildings saw little activity.

RM Friedland’s Maturo termed the year-to-year winners in overall growth in respect to leasing was the industrial sector in the Westchester County market with an availability rate of approximately 6%. The average asking rent has hit a new record of $19.06-per-square-foot. The only asset type that saw an increase in sales volume in 2023 as compared to a year earlier was the retail market due in large part to the amount of cash deals that closed. The retail market, fueled by the sale of some Class A assets, saw an increase of 12% in value to $380-per-square-foot, she noted.

Nova North’s O’Gorman reported that office leasing in Rockland County grew 10.5% in 2024 as compared to a year earlier. He said that the leasing volume was fueled in large part (76.5%) by deals of less than 2,000 square feet and many businesses that were looking to shrink their office footprints. He said that retail leasing in Rockland County grew by approximately 5.6%.

Houlihan Lawrence’s LaPerch and Salomone said that in the Putnam-Dutchess County markets, retail space has been repurposed for recreational uses, including for popular Pickleball facilities. In addition, restaurants are making a comeback after Covid. Other areas of growth they say are in the medical space and some segments of the office market as more companies put limitations on work-at-home policies and demand employees work out of the office a majority of the work week.

Sponsors of the CID event were: NYSCAR Hudson Valley, Ten-X, Houlihan Lawrence Commercial, Ecuadane and C2G Environmental.