In an effort to keep up with e-commerce distribution demands, developers in New Jersey and Long Island are repurposing vacant suburban office buildings into warehouses. While this conversion seems backwards, as office space costs more to build and usually generates higher rents, the red-hot warehouse market driven by the rise of e-commerce has changed that. Though the numbers are small, several suburban office properties in or near New Jersey and Long Island industrial neighborhoods have been redeveloped as warehouses. Industrial values continue to rise, making the conversion worthwhile for developers.
According to the Wall Street Journal, many of the converted properties weren’t top-notch office space but met a number of requirements for a warehouse, including close proximity to New York City, ports and highways but ample distance from residential communities. Adequate land for trailer-trucks to park and move goods is also critical, said Jules Nissim, an executive vice president real estate services firm Cushman & Wakefield. The sites also were in office markets that have been soft, brokers said. The vacancy rate for Long Island stood at 14.3% in the third quarter; New Jersey’s vacancy rate was 24%, according to JLL. By comparison, the vacancy rates for Industrial space are 1.8% on Long Island and 4.6% in northern and central New Jersey.
Prices for industrial space are soaring. The average sale price on Long Island is $96.80 a square foot, compared with $62.50 three years ago. In New Jersey, warehouses are going for an average of for $74.84 a square foot, compared with $63.78 in 2013. One reason is the migration of industrial companies in Brooklyn and Queens to Long Island and New Jersey; the businesses, flush with cash from selling properties in the boroughs for hotel or residential development, are ramping up the competition to buy sites, brokers said. “They made so much money selling the building, and in many cases it was worth more than their businesses,” said Frank Frizalone, a Cushman & Wakefield executive director who is based on Long Island. “There are more buyers than renters out there.”
For the full article from the Wall Street Journal, click here.