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Jul 16, 2023

Report: Long Island warehouse boom may turn into a glut

The final building under construction for a warehouse development at an

The final building under construction for a warehouse development at an industrial park at Gabreski Airport in Westhampton Beach. Credit: James Carbone

Vacant warehouses may soon dot Long Island because the record number of warehousing projects under construction or on the drawing board will likely exceed storage needs, according to a new report.

The industry's vacancy rate is projected to climb from 2.4% last year to between 6% and more than 9% by 2027 in Suffolk County, if most of the proposed projects are completed, the economic development analysis firm Camoin Associates states in the report. Suffolk is home to 68% of the Island's warehouse space.

Camoin was hired by the Brookhaven Town Industrial Development Agency to study the future of warehousing. IDA board members sought the additional information after receiving five applications for tax breaks from developers, who together want to construct 2 million square feet of warehouses in the town, or 25% of the total additional warehouse space being proposed islandwide.

"We see real potential for overbuilding," said John Walker, an analyst for Camoin, which is based in upstate Saratoga Springs. "The potential for an upcoming recession could definitely drop back demand [for warehouse space] and the extent to which interest rates go up could make some of these projects no longer feasible."

He and Camoin chief operating officer Rachel Selsky said the drawbacks of overbuilding include the closure of existing warehouses, job losses and tax breaks awarded to projects that then cannot find tenants.

Selsky said developers’ recent interest in Long Island as a warehousing destination is in response to increased online shopping during the height of the pandemic in 2020-21. Shoppers now expect same-day and next-day delivery of packages, leading Amazon and other retailers to open new warehouses across the country, she said during last month's IDA meeting.

Selsky also said retailers and other businesses are opening warehouses on the Island to serve New York City as well as Nassau and Suffolk counties.

"This demand may not be sustained into the future, which would result in higher vacancy rates that would likely be most detrimental to the older, less modern warehouses in the community," Selsky said, adding that warehouses with high ceilings that can accommodate tall racks of products are in great demand.

IDA vice chairman Felix J. Grucci Jr., a fireworks executive and former Brookhaven supervisor, welcomed the report, saying he's concerned about "zombie buildings in the not too distant future as we get more and more of these high-tech buildings in place."

He added, "The report tells us to be very cautious about overbuilding."

IDA CEO Lisa M.G. Mulligan predicted there would still be demand for older warehouses because not all tenants need high ceilings or are willing to pay the higher rents that go along with them.

IDA chairman Frederick C. Braun III, a former banker, agreed, adding that shovels will probably never be put into the ground for all of the proposed warehouses because some won't be economically feasible in an economic downturn and lenders won't provide the necessary construction loans.

The developers’ group Association for a Better Long Island said the report's conclusions were not surprising and that Brookhaven leaders should trust market forces.

"When the financial community determines projects are not viable, it is an indication that the need for this kind of construction has receded," the group's executive director Kyle Strober said on Wednesday.

The Camoin researchers noted their tally of proposed warehouse projects on Long Island is lower than a Newsday study published in August.

The newspaper found more than 11 million square feet of new space is on the drawing board, under construction or recently completed, based on interviews with developers and documents filed with towns and IDAs.

"If only half of the projects presented in the Newsday article are developed, vacancies could easily exceed 7%," Camoin said. "Building 80% [of the projects] could push industrial vacancies to rates upwards of 10%."

Vacant warehouses may soon dot Long Island because the record number of warehousing projects under construction or on the drawing board will likely exceed storage needs, according to a new report.

The industry's vacancy rate is projected to climb from 2.4% last year to between 6% and more than 9% by 2027 in Suffolk County, if most of the proposed projects are completed, the economic development analysis firm Camoin Associates states in the report. Suffolk is home to 68% of the Island's warehouse space.

Camoin was hired by the Brookhaven Town Industrial Development Agency to study the future of warehousing. IDA board members sought the additional information after receiving five applications for tax breaks from developers, who together want to construct 2 million square feet of warehouses in the town, or 25% of the total additional warehouse space being proposed islandwide.

"We see real potential for overbuilding," said John Walker, an analyst for Camoin, which is based in upstate Saratoga Springs. "The potential for an upcoming recession could definitely drop back demand [for warehouse space] and the extent to which interest rates go up could make some of these projects no longer feasible."

He and Camoin chief operating officer Rachel Selsky said the drawbacks of overbuilding include the closure of existing warehouses, job losses and tax breaks awarded to projects that then cannot find tenants.

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Selsky said developers’ recent interest in Long Island as a warehousing destination is in response to increased online shopping during the height of the pandemic in 2020-21. Shoppers now expect same-day and next-day delivery of packages, leading Amazon and other retailers to open new warehouses across the country, she said during last month's IDA meeting.

Selsky also said retailers and other businesses are opening warehouses on the Island to serve New York City as well as Nassau and Suffolk counties.

"This demand may not be sustained into the future, which would result in higher vacancy rates that would likely be most detrimental to the older, less modern warehouses in the community," Selsky said, adding that warehouses with high ceilings that can accommodate tall racks of products are in great demand.

IDA vice chairman Felix J. Grucci Jr., a fireworks executive and former Brookhaven supervisor, welcomed the report, saying he's concerned about "zombie buildings in the not too distant future as we get more and more of these high-tech buildings in place."

He added, "The report tells us to be very cautious about overbuilding."

IDA CEO Lisa M.G. Mulligan predicted there would still be demand for older warehouses because not all tenants need high ceilings or are willing to pay the higher rents that go along with them.

IDA chairman Frederick C. Braun III, a former banker, agreed, adding that shovels will probably never be put into the ground for all of the proposed warehouses because some won't be economically feasible in an economic downturn and lenders won't provide the necessary construction loans.

The developers’ group Association for a Better Long Island said the report's conclusions were not surprising and that Brookhaven leaders should trust market forces.

"When the financial community determines projects are not viable, it is an indication that the need for this kind of construction has receded," the group's executive director Kyle Strober said on Wednesday.

The Camoin researchers noted their tally of proposed warehouse projects on Long Island is lower than a Newsday study published in August.

The newspaper found more than 11 million square feet of new space is on the drawing board, under construction or recently completed, based on interviews with developers and documents filed with towns and IDAs.

"If only half of the projects presented in the Newsday article are developed, vacancies could easily exceed 7%," Camoin said. "Building 80% [of the projects] could push industrial vacancies to rates upwards of 10%."

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.

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