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New York’s Industrial Properties: Reviewing H1 2023
A look at AEBOV's recent market report on New York’s outer boroughs highlights changes in buyer profiles and what property features are impacting pricing the most.
- Market Pulse: Transaction Dynamics in H1 2023
- Bronx: A Steady Player
- Brooklyn: Holding the Fort for Generations
- Queens: The Front Runner
- Diving Deeper: Functional Value Drivers in Industrial Properties
- The Significance of Clear Heights
- Clear Height Price Differentiation
- Diverse Elements Boosting Property Value
- Loading Positions: The More, the Merrier
- Proximity to Highways
- The Advantage of On-Site Parking
- Navigating the Changing Landscape: Shifts in the Buyer Profile
- Emergence of New Stakeholders
- Revival of Heavy Industrial Activities
- Congress’ 2021 Infrastructure Deal's Impact
- The Rising Allure of Industrial Outdoor Storage Sites
- IOS Transaction Dynamics
- Pricing Trends for IOS
- The Industrial Property Finance Puzzle
- Interplay With the Federal Funds Rate
- Navigating Varied Financing Avenues
- Traditional vs. SBA Loans
- Seller Financing and Institutional Backing
- Gauging Sales Effectiveness
- Peering Into the Future: Market Predictions for NYC's Industrial Real Estate
- Navigating Rising Interest Rates
- The Recession Cloud on the Horizon
- Conclusion
- Get Financing
AEBOV, a leading industrial real estate brokerage, recently released a report shedding light on what happened in the industrial property market in the outer boroughs of New York City during the first half of 2023.
This comprehensive study examined sales volumes, functional value drivers, and evolving buyer profiles, making it an indispensable resource for industrial real estate investors.
Market Pulse: Transaction Dynamics in H1 2023
The outer boroughs of New York City have always been a hotbed of industrial real estate activity, and the first half of 2023 was no exception. A total of 54 transactions took place during this period, marking a 4% increase from the same time last year.
However, while the quantity of deals showcased vibrancy, the total dollar amount told a different story. The combined value of these transactions reached $716 million, experiencing a sharp 49% drop compared to the same timeframe the previous year.
Bronx: A Steady Player
The Bronx, often considered a stable player in the industrial real estate scene, reported 10 transactions in the first half of 2023. These deals collectively amounted to approximately $129.7 million. The average price per square foot for these properties was $341, reflecting the borough's consistent demand.
Furthermore, the average hold period, which indicates the duration a property is held before being sold, was 27 years. This suggests that many of the Bronx's industrial properties have long-standing histories and deep-rooted business foundations.
Brooklyn: Holding the Fort for Generations
Brooklyn, known for its dynamic blend of old and new, notched 18 transactions with a combined worth of around $140.8 million. Investors and business owners paid an average of $396 per square foot, highlighting the borough's sustained appeal.
Properties in Brooklyn had the longest average hold period among the three boroughs, at 31 years. This highlights the generational nature of many industrial businesses in the area, with properties often being held for decades before going on the market.
Queens: The Front Runner
Leading the pack, Queens reported a robust 26 transactions in the first half of 2023, with the total dollar amount reaching approximately $445.4 million. This borough saw the highest average per-square-foot sale price at $454, underscoring its premium positioning in the industrial real estate market. With an average hold period of 24 years, Queens presents a blend of both long-standing businesses and newer entrants, making it a focal point for investors looking for diverse opportunities.
Diving Deeper: Functional Value Drivers in Industrial Properties
In industrial real estate, specific property features play a pivotal role in determining value. For commercial property investors and businesses alike, understanding these functional value drivers is crucial as they significantly influence purchasing decisions, operational efficiency, and potential returns.
Some of this is a function of time. A cross-dock distribution center with 40-foot clear heights and massive truck courts would have been nearly unthinkable just a few decades ago, for example.
As New York’s industrial market is more mature, most of the outer boroughs’ inventory may appear dated compared to the features in a new building 20 miles away in Northern New Jersey. Still, with close proximity to millions of people, smaller, less modern facilities are fine — as long as the location serves it well.
The Significance of Clear Heights
Clear height, fundamentally, refers to the usable height within an industrial space, measuring from the floor to the bottom of any overhead obstruction like trusses or beams. It's a crucial metric in industrial properties as it dictates the stacking potential of goods, machinery placement, and overall operational capacity.
Clear Height Price Differentiation
The AEBOV report reveals a clear price differentiation based on clear heights. The value attributed to this vertical space is evident in the numbers: Properties boasting clear heights of 18 feet or more commanded prices that were 20% higher than those with lower clear heights. This premium showcases the demand for spaces that allow for more vertical storage and potentially more sophisticated machinery.
Diverse Elements Boosting Property Value
While clear heights remain a significant value driver, several other features were also influential in shaping the worth of an industrial property.
Loading Positions: The More, the Merrier
Loading positions determine the efficiency of goods moving in and out of a facility. Multiple loading positions signify enhanced logistical capabilities.
They allow for simultaneous loading and unloading, reducing wait times and increasing throughput — a sought-after feature for businesses aiming for operational efficiency. This rings especially true for last-mile distribution facilities.
Proximity to Highways
The location of an industrial property in relation to major highways is another critical determinant of its value. Being closer to highways ensures quicker transit times, reduced transportation costs, and improved supply chain efficiency. It's no surprise that properties with easy highway access often fetch higher prices, as they promise better connectivity and logistical advantages.
The Advantage of On-Site Parking
Outdoor parking, often overlooked, plays a vital role in the valuation of industrial properties. It provides space for vehicle storage, facilitates easier movement of goods, and ensures ample parking for staff and visitors.
Properties equipped with outdoor parking areas are often more versatile, catering to a broader range of industrial activities and, therefore, attracting a premium.
Alongside parking for cars, trailer parking can also serve as a big value booster. Naturally, though, given space constraints in New York, even a handful of parking spaces can influence a property’s value.
Navigating the Changing Landscape: Shifts in the Buyer Profile
The industrial real estate market in New York City's outer boroughs showcased intriguing dynamics in the buyer profile during the first half of this year. As industries evolve and businesses diversify their operations, the types of properties in demand and the buyers' personas have adjusted in tandem. Understanding these shifts can equip investors with insights to make informed decisions.
Emergence of New Stakeholders
The diversification of the buyer pool became evident as the year progressed. Aviation service providers, contractors, and fleet operators made their mark as new entrants, seeking suitable spaces to accommodate their operational needs.
Revival of Heavy Industrial Activities
The market witnessed a pronounced comeback of heavy industrial sectors. Concrete contractors, renewable energy providers, and recycling businesses actively sought properties that cater to their specialized needs, indicating a revitalized momentum in these industries.
Congress’ 2021 Infrastructure Deal's Impact
The 2021 Infrastructure Deal, championed by Congress, likely played a pivotal role in this resurgence. With significant investments directed towards infrastructure development, businesses in construction, energy, and recycling found opportunities to expand, driving their presence in the area.
The Rising Allure of Industrial Outdoor Storage Sites
IOS, or industrial outdoor storage, represents a niche within the broader industrial real estate spectrum. Distinguished by expansive outdoor spaces, these properties cater to needs like truck and vehicle parking, fleet maintenance, equipment storage, and even heavy industrial operations. Their unique features make them highly sought after by businesses that require extensive outdoor operational spaces.
IOS Transaction Dynamics
The popularity of IOS sites surged in the first half of this year. A doubling in the number of transactions, coupled with a 150% increase in dollar volume, underscores the growing demand — and value — of these properties.
Pricing Trends for IOS
Reflecting their unique appeal, IOS sites fetched distinctive prices. The average land sale price of $289 per lot square foot in the first half of this year provides a gauge of their market value, emphasizing their significance in the industrial property landscape.
The Industrial Property Finance Puzzle
Financing plays a crucial role in the ebb and flow of the industrial real estate market. With various financing options available and changing interest rate environments, understanding the financial landscape becomes paramount for potential investors and stakeholders.
Note that whether you’re looking for a loan for an investment property or seeking a building for your small business, our platform can match you with thousands of lenders to get the best financing for your situation. Just fill in the form at the bottom of this page, and we’ll get to work for you.
Interplay With the Federal Funds Rate
The federal funds rate has seen shifts that are rippling through the real estate markets, regardless of property type. Simply put, borrowing costs for potential buyers have significantly increased.
Higher interest rates generally temper borrowing enthusiasm, potentially leading to reduced transaction volumes or adjustments in property valuations. For those seeking financing, these rate changes become a significant factor in decision making and deal structuring.
Navigating Varied Financing Avenues
In the diverse landscape of financing, buyers have a spectrum of options, each with its pros and cons.
Traditional vs. SBA Loans
While traditional bank loans remain a staple for many, the allure of non-bank Small Business Administration loans, specifically the SBA 7(a) and SBA 504, has grown. These loans can offer favorable terms for eligible businesses that will occupy more than half a property. Potential borrowers should note the maximum limit of $5 million for the SBA 7(a) program. These caps could constrain larger transactions or more expansive properties.
Seller Financing and Institutional Backing
Seller financing has emerged as a viable option for some buyers, allowing for more flexible terms and potentially faster transaction processes. Additionally, backing from larger parent companies or institutional investors can bolster a buyer's purchasing power, enabling them to stand out in competitive bidding situations or secure properties with higher valuations.
Gauging Sales Effectiveness
In terms of sales efficiency, the industrial properties traded in New York City's outer boroughs achieved 86% of their asking prices. This metric could be of some comfort, especially given the large gap between buyers and sellers in other asset classes.
Peering Into the Future: Market Predictions for NYC's Industrial Real Estate
As with any dynamic market, the industrial real estate landscape in New York City's outer boroughs is subject to influences from various macroeconomic factors. Predictions and forward-looking statements can offer stakeholders valuable insights into potential market shifts and upcoming challenges or opportunities.
Navigating Rising Interest Rates
If the trend of rising interest rates persists — and we may yet see another rate hike — borrowing costs for potential buyers will continue to climb. This could lead to adjustments in property valuations, deal structures, and transaction volumes. Expensive financing tends to temper enthusiasm, especially among those heavily reliant on financing.
That said, the industrial property sector has proved remarkably resilient, thanks to the sustained boom of e-commerce (even if growth has decelerated in the past couple years) among many other factors.
The Recession Cloud on the Horizon
If you’ve read the news at all this year, you know that concerns about a potential recession loom. Economic downturns can have pronounced impacts on real estate, even industrial assets.
For owner-occupiers, a recession might influence operational efficiencies, demand for products, or even the viability of continuing business from specific locations. Investors, on the other hand, may adopt a more cautious stance, possibly leading to reduced investments or a more selective approach to property acquisitions.
Conclusion
New York City's outer boroughs have seen a lot of action in the industrial property market this year. The AEBOV report points out clear trends in what buyers are looking for, from property height and closeness to highways, and how they impact pricing.
However, with changing interest rates and concerns about the economy's direction, what happens next isn't perfectly clear. Everyone in the market should keep an eye on these changes and be ready to adapt.
- Market Pulse: Transaction Dynamics in H1 2023
- Bronx: A Steady Player
- Brooklyn: Holding the Fort for Generations
- Queens: The Front Runner
- Diving Deeper: Functional Value Drivers in Industrial Properties
- The Significance of Clear Heights
- Clear Height Price Differentiation
- Diverse Elements Boosting Property Value
- Loading Positions: The More, the Merrier
- Proximity to Highways
- The Advantage of On-Site Parking
- Navigating the Changing Landscape: Shifts in the Buyer Profile
- Emergence of New Stakeholders
- Revival of Heavy Industrial Activities
- Congress’ 2021 Infrastructure Deal's Impact
- The Rising Allure of Industrial Outdoor Storage Sites
- IOS Transaction Dynamics
- Pricing Trends for IOS
- The Industrial Property Finance Puzzle
- Interplay With the Federal Funds Rate
- Navigating Varied Financing Avenues
- Traditional vs. SBA Loans
- Seller Financing and Institutional Backing
- Gauging Sales Effectiveness
- Peering Into the Future: Market Predictions for NYC's Industrial Real Estate
- Navigating Rising Interest Rates
- The Recession Cloud on the Horizon
- Conclusion
- Get Financing