By Jessica DiNapoli
Published: 2:00 AM – 03/10/13
When the next wave of significant business expansion washes ashore in Orange County, the commercial real estate market will likely not be ready.
A lack of speculative commercial building during the past three years pulled the vacancy rate for prime industrial space down to 5.8 percent at the end of 2012.
That figure is the lowest in more than a dozen years, and significantly below the national vacancy rate of 9.44 percent, according to Mansfield Commercial Real Estate’s 2012 year-end overview of the county.
There were only 1.1 million square feet of prime industrial space available for sale or lease in the county at the end of 2012. Over the course of last year, 660,000 square feet of space was absorbed, according to the report.
If this year shapes up to be better than last — and commercial brokers have said business is picking up — Orange County could be out of room at the end of 2013.
“Once things get back to normal, it’s going to be really tight,” said Elisabeth Mansfield, author of the report and a commercial real estate broker based in Goshen. “We will have to build, or they’ll go elsewhere.”
Three businesses expanded
Three expansions of existing businesses were the only additions to the county’s inventory of prime industrial space last year.
Aurochemicals in Washingtonville, a maker of natural flavor and fragrance ingredients, added 20,000 square feet. In Chester, Steris, which provides sterilization and decontamination services, added 8,000 square feet; and logistics company Trade Trans added 7,000 square feet.
United Auto Supply’s purchase of a 32,000-square-foot warehouse on Governor Drive in the Town of Newburgh was one of a handful of transactions last year. The upstate New York auto-parts distributor had been contemplating a move to the mid- to lower-Hudson Valley market, a new one for them, for the past five years, said General Manager Chip Raven.
Several large build-to-suit office and industrial projects, including Hunter Panels in Hamptonburgh and Mediacom Communication Corp. in Blooming Grove, were under way at the end of December.
Prices on the rise
The low inventory means rents and sale prices will increase, said Robert Scherreik, the executive managing director of Cushman & Wakefield/Pyramid Brokerage Co.
He is the listing agent for one of only two vacant industrial buildings with more than 100,000 square feet that were available at the end of 2012.
Sale prices fell as much as 50 percent after peaking around 2006, but are now firming up, he said.
On the leasing side, prime industrial space goes for the $5 to $6 range, triple net (the tenant pays all expenses, such as taxes, insurance, and maintenance), with smaller spaces going for more per foot than larger ones, according to the report.
High construction costs
Scherreik said sale prices are still below replacement-level costs, but as they continue to increase, building new becomes more attractive.
New construction is still very expensive because costs for labor and raw materials, including steel, didn’t crash with everything else in the recession, he said.
Scherreik said he has seen some interest in his large industrial building, the 170,000-square-foot former New England Laminates Co. plant in the Town of Newburgh.
“We’ve had some other manufacturers look at it, and developers who specialize in taking older buildings and dividing them up for units for smaller users,” he said.
The other available 100,000-square-foot-plus building also formerly housed a manufacturing operation, rather than distribution, which makes up most of Orange County’s industrial space, Mansfield said in her report.
New Wallkill site planned
The Frassetto Cos., builder of a half-million square feet of industrial space in the Town of Wallkill since the 1980s, may be the first developer to break the commercial-spec standstill.
The company has plans to build about 120,000 square feet of new industrial space in the Town of Wallkill.
“When all my vacant space is leased up, I would build,” said John Albert Frassetto, a principal of the company.
Frassetto’s occupancy rate for his buildings in Orange County was about 88 percent in late February.
Normally, it’s around 95 to 97 percent.