How Industrial Property Became Hot & The Amazon Effect, By Eileen Wang

Industrial properties haven't always been as attractive as a sleek, new office buildings. However, this has changed dramatically recently. Developers today are clamoring to purchase warehouse spaces in NY and NJ as prices and rents are shooting up. However, there are not many large sites for purchase anymore; New York City's industrial real estate is rapidly disappearing as the city rezones large areas of boroughs to pave way for new residential buildings. On the other hand, developers in New Jersey are building millions of square feet of new industrial space, and e-commerce tenants and businesses are taking huge blocks of industrial land on both sides of the river while paying more than old-school warehouse tenants. Traditional industrial businesses are being priced out of former manufacturing areas like Gowanus, Greenpoint, and Long Island City, and owners are increasingly converting their buildings into creative office spaces. It is interesting to observe that the dollar volume of commercial sales in Brooklyn has dropped since the first quarter of 2016 and slid by a third since last quarter! Meanwhile, the value of Brooklyn commercial property has shot up 20% due to high priced closings of small properties. The average sale price has risen from $325/sq foot to $389/sq foot in just one year! Digit retail giants such as Amazon and Apple have also caused large shifts in industrial real estate as they choose to invest more in industrial properties. Many suppliers who help fulfill orders for these large e-commerce companies rent out (the very few) large industrial spaces left in the cities in hopes of reducing their transportation costs and moving goods from their warehouses to customers' homes as quickly as they can. This is referred to as "last-mile distribution." Despite the conversion of industrial spaces, many traditional manufacturing zones still endure in NYC, although they are farther from Manhattan than before. The South Bronx, East NY, Brooklyn, and Maspeth, Queens have become new prime spots for industrial tenants, like construction suppliers and food distributors. These formerly undesirable neighborhoods have become hot real estate because rents are semi-affordable with wide roads (for distributor trucks) and high-ceiling warehouses. Looking to the future, the e-commerce industrial wave should eventually cool down as companies consolidate their spaces in the industrial sector.