The high price of real estate in Queens and Brooklyn, driven by the relentless spread of residential development, is pushing some industrial companies out of the city and onto Long Island.
Brokers say they are seeing an increase in distribution and manufacturing companies looking in Nassau and Suffolk as the city becomes too expensive for them.
“We’re definitely seeing people willing to come out to Long Island,” said Jason F. Maietta, senior director of industrial real estate for the Long Island office of brokerage firm Colliers International. There’s enough movement that “there’s certainly an upward pressure on prices” on Long Island.
Atlas Direct Mail, a commercial printer and mailer of promotional materials, formerly based in Long Island City in Queens, is finishing a move to a 14,800-square-foot space it purchased last year at 98 Magnolia Ave. in Westbury. The firm employs just under 20 people.
“My mortgage here in the new location is about 20 percent less than what I was paying in rent over there,” said Edward Feldstein, owner of Atlas Direct.
Average asking rents for industrial space on the Island have risen from $9.15 per square foot in the fourth quarter of 2014 to $10.08 in the fourth quarter last year, according to a report by the Long Island office of the real estate service firm Newmark Grubb Knight Frank. Industrial vacancy rates here hit record lows in the fourth quarter by one estimate, dropping to 2.4 percent, according to data from the Long Island office of brokerage Jones Lang LaSalle. Demand from industrial companies already on the Island is a major factor, but movement from the city contributes, brokers said.
To be sure, Long Island has been a destination for companies seeking to leave New York City for a century or more. And the influx of industrial firms relocating to the Island is unlikely to reverse the shrinking of manufacturing here.
The number of manufacturing jobs on the Island was 71,600 in December, down from a high of 132,700 in 1990, according to the state Labor Department.
But the smaller category of workers in transportation and warehousing, which includes distributors, has risen, hitting 38,400 in December, up from 30,900 in 1990.
Challenges on LI
Long Island presents challenges for industrial firms looking to move here from the city, including congested highways, a lack of good public transportation, and the absence of new industrial buildings, said David Pennetta, executive director of the Melville office of Cushman & Wakefield. “We’re not the natural place to expand,” he said.
Industrial workers in the city often don’t need to own cars, so a move to the Island can mean the loss of longtime employees, said Chuck Tabone, executive vice president and managing director of Newmark Grubb Knight Frank’s Melville office. “Usually, the first thing they say is,‘ What about my employees?’ ” Tabone said. “Nobody wants to move and have no employees.”
Despite the Island’s infrastructure challenges, some borough-based firms make the leap because of the cost of staying in the rapidly gentrifying city. Moving to Long Island still allows them to be near customers and employees in the city.
New York lost 14 percent of its land dedicated to industrial facilities in the mid-2000s due to rezoning changes during the Bloomberg administration that allowed developers to build large residential projects in areas historically zoned for industrial uses, according to a 2008 study by the Pratt Center for Community Development.
Neighborhoods such as Bushwick and Williamsburg in Brooklyn and Long Island City in Queens — once filled with warehousing and manufacturing operations — have transformed over the past decade into residential neighborhoods for young professionals looking for alternatives to Manhattan.
“The young people are going into the outer boroughs,” said Jerry Wolkoff, the Edgewood-based developer behind the long-delayed Heartland Town Square project in Brentwood. “It’s going to be this way for years.”
Towers going up
Wolkoff is building two apartment towers — a 48-story building, and a 41-story building totaling over 1,100 units — in Long Island City at 5Pointz, a former industrial site that he has owned for 41 years.
To meet rising demand for housing, developers and investors are paying $300 to $400 per square foot to buy industrial sites in the boroughs that they convert to residential buildings. Industrial space on Long Island goes for $100 a square foot or less.
In some instances, offers have been so high that city business owners who also own their real estate have been able to retire after selling to residential developers, brokers say.
“A lot of families have found it’s better to cash in their chips now because they believe the market is as high as it’s going to be,” said Neil A. Dolgin, co-president of Kalmon Dolgin Affiliates Inc., a 112-year-old family-owned, Brooklyn-based industrial real estate brokerage.
Adam Wechsler, vice president of sugar and food products distributor Quaker Sugar Co. Inc., said he had no intention of cashing out after the $31.5 million sale of his family-owned company’s headquarters in Williamsburg last year to Manhattan-based developer Slate Property Group, which plans to build a seven-story, 125-unit apartment building on the site.
“I wasn’t going to be the one after four generations to say we’re going to take the money and run,” Wechsler said.
Quaker Sugar, founded in 1933 in lower Manhattan, moved to the Williamsburg facility in the early 1970s, and acquired three additional contiguous buildings as it grew, reaching 27,000 square feet of space.
Initially, Wechsler didn’t plan to sell, but Quaker Sugar was outgrowing its space, and he heard how much a neighboring property sold for.
After an unsuccessful yearlong search for an alternative in the boroughs, Quaker Sugar in October closed on the purchase of a 168,000-square-foot industrial property at 100 Andrews Rd. in Hicksville from developer Rechler Equity Partners, brokered by longtime family friend Dolgin.
“You find what you’re looking for in the last place you look,” said Wechsler, adding that Long Island wasn’t “even on the short list” given his concerns over trucking and delivery times.
Feldstein of Atlas Direct said his company needed more space and rents on the 8,900-square-foot site he leased in the city were likely to double in 2016 from $12 per square foot.
Feldstein, a resident of Syosset, said that while his preference was to stay in the city, with his type of business “it doesn’t really matter where we are.”
Size wasn’t right
Ruby Has Fulfillment, a bicoastal shipping and logistics company for online retailers, moved from 25,000 square feet of space in College Point, Queens, to nearly 100,000 square feet in Bay Shore in January 2015 after it couldn’t find a large enough location to lease in the city.
“In the city the size and price wasn’t right for our type of industry,” said Ruby Has founder Rafael Zakinov, who started the company in 2011 to capitalize on the growth of online retailers.
The business owner initially considered moving his operation to New Jersey. However, incentives offered by the Islip Industrial Development Agency, and two rentable buildings in Bay Shore — 5 Inez Dr. and 75 Spence St. — found by his Hauppauge-based broker, Richie Cohen, helped sway Zakinov to head to Suffolk County.
Getting employees to the new locations hasn’t been easy for these companies, many of whose workers live in the city.
“That whole commuting piece has been — and I suspect for at least the short term will continue to be — a work in progress,” said Wechsler, whose 15-employee operation lost only one worker in the move. While Quaker Sugar works on putting together a commuter benefit program, Wechsler said his employees have been using the subway and LIRR to get to work.
Zakinov, who lives in Queens, said about 30 percent of Ruby Has’ 65 employees have turned to carpooling to adjust to the commute.
“The HOV lane is a blessing,” said Zakinov, who lost some employees in the move. “If it weren’t for the HOV lane, we wouldn’t be on Long Island.”
Feldstein said access to public transit factored heavily into his decision not to relocate Atlas Direct to Suffolk.
“I didn’t go further out because the transposition is poor,” he said. “But this [Westbury] location was by a few train stations, and we have a few people who do drive.”
Some brokers say demand from the newcomers may help drive prices for Island commercial properties even higher.
“If the housing boom continues in the boroughs and those companies keep coming out here, I think that pricing will continue to go up,” said Doug Omstrom, senior vice president at Jones Lang LaSalle in Melville.