Central Suffolk Office Submarket Overview: 2024 Mid-Year Update

The Central Suffolk office submarket has faced significant challenges in the first half of 2024, reflecting broader trends across the Long Island office market. This area, with its 10.8 million square feet of office space, has seen weak demand and rising vacancy rates, but also glimpses of a possible recovery.

Weak Demand and Rising Vacancies

The submarket continues to struggle with weak demand. In the first six months of 2024, net absorption was negative at nearly -35,000 square feet, following a poor showing in the latter half of 2023. Notable move-outs at significant office locations, including a medical office in Garden City and RXR Plaza in Uniondale, contributed to these negative figures. As a result, the vacancy rate has increased to 7.3%.

Encouraging Leasing Activity

Despite these challenges, there are signs of a turnaround. Leasing activity in early 2024 was promising, with total leasing volume reaching 64,000 square feet in Q1, nearly tripling the activity at the end of 2023. This surge suggests potential for improved occupancy rates in the coming quarters. The highest availability is in 3-Star properties, with a 10.3% rate, while 4 & 5 Star buildings have a more stable availability rate of 5.7%.

Market Conditions and Rental Trends

Central Suffolk offers the most affordable office rents on Long Island, with average asking rents at $28.00 per square foot, which is approximately $6.00 per square foot lower than the broader Long Island metro area. However, rent growth has slowed significantly, down to just 0.9% as of July 2024, after peaking at nearly 7% in mid-2021. This tenant-friendly market has led to increased concessions and discounts, further easing leasing costs.

Limited Construction Activity

Construction in Central Suffolk is minimal, with only 70,000 square feet of new office space currently under development, representing just 0.6% of the total inventory. This limited supply of new space could help stabilize occupancy rates amid the weak demand.

Sales Trends and Capital Markets

Sales volume in Central Suffolk has been subdued, with under $20 million in transactions in 2023—the lowest since 2016. However, the average sale price per square foot has risen significantly, driven by transactions in the medical office sector. The most notable sale was a 6,400-square-foot medical office condo at Stony Brook Technology Center, which sold for $3.3 million, or $517 per square foot.

Looking Ahead

While Central Suffolk’s office market faces ongoing challenges, the recent uptick in leasing activity and the limited pipeline of new space suggest that the worst may be over. Investors and tenants alike will be watching closely to see if the positive momentum in leasing can be sustained through the remainder of 2024.