REAL ESTATE SERVICES FOR OFFICE, INDUSTRIAL, RETAIL, DEVELOPMENT, BUILD-TO-SUIT, INVESTMENT AND LAND

Narrative Overview

Overview of the Commercial Real Estate Market
in Orange County, NY at Year-End 2019

By Elisabeth Mansfield
Mansfield Commercial Real Estate

The Industrial Market in 2019

The total inventory of prime industrial space in Orange County, NY, as of year-end 2019, stood at 23.1 million square feet, with approximately 370,000 square feet of new construction being added over the year. And since the bulk of this new space was built-to-suit, the County’s severe shortage of industrial product continued. Although there was another ±320,000 square feet of speculative industrial space approved, those projects were delayed and so the vacancy rate for prime industrial space at year-end 2019 stood at 2.0%. But over the next three years, there is more industrial product planned than that which was constructed over the last 20 years; however, with several towns contemplating moratoriums, there is an increasing element of uncertainty regarding some of this development.

Twelve new industrial buildings were constructed in 2019 and three other facilities underwent expansions. Nearly 94% of this new construction was built-to-suit. Mondelez, one of the largest snack companies in the world, constructed a ±100,000 square foot distribution center on Leonards Drive in the Town of Montgomery; a ±90,000 square foot building on Bracken Road, also in Montgomery, was completed and acquired by the principal of Port Priority Corp; Dana Distributors expanded their beverage warehouse by ±46,500 square feet and also constructed a ±12,000 square foot recycling facility on their campus in Westgate Goshen Business Park in the Village of Goshen; Orange County Iron Works added ±45,000 square feet to their building, and also constructed another ±7,000 square foot facility for their Gabriel Steel Erectors affiliate on Maybrook Road in the Town of Montgomery; Aurochemicals added a second building of ±25,000 square feet to their headquarters site in Washingtonville; Monroe Zafir completed an ±8,400 square foot building for his plastic bag company on Dunn Road in the Village of Montgomery; Olympic Electric finished their new ±8,000 square foot building on Route 17K in the Town of Montgomery; Ironworkers Local 417 added a ±4,800 square foot addition to their facility on Route 32 in the Town of Newburgh; and developer Ray Yannone completed three spec buildings on Bill Larkin Drive in New Windsor: a ±4,650 square foot facility, now occupied by airplane parts distributor CTG, plus a ±1,950 square foot building and a ±1,360 square foot building, both now occupied. Two other small buildings were constructed on spec: an ±8,200 square foot warehouse on Hempstead Road in New Windsor, and a ±7,000 square foot warehouse on Lower Road in the Town of Goshen; both buildings have users lined up and are expected to be occupied in early 2020.

With the industrial market so tight, and with the need for e-commerce warehouses increasing, developers are scrambling to accommodate demand. There was approximately 8.5 million square feet of industrial space planned or approved in Orange County, NY as of year-end 2019. Over 60% of this will be built-to-suit, and the balance ˗ approximately 3 million square feet – is spec development that will make its way through the approval process to become shovel-ready. Some of these developers say they will start construction without an end-user, while others will wait to commence construction until all or a significant portion of the space is spoken for.

Over 560,000 square feet was under construction as of year-end 2019 including a ±369,000 square foot organic vegetarian meal manufacturing facility in the Town of Goshen for Amy’s Kitchen, planning to open in 2021, and an ±81,000 square foot facility for Aluprof USA to manufacture and assemble window components on Hawkins Drive in the Town of Montgomery. Citiva is continuing work on its ±40,000 square foot medical marijuana production facility in the Town of Warwick, and a ±60,000 square foot spec warehouse building was nearing completion in the Town of Goshen.

Of the planned build-to-suit facilities, the two largest are in the Town of Montgomery. Medline, the largest privately-held manufacturer and distributor of medical supplies, is planning a ±1.3 million square foot distribution facility, having outgrown its current ±500,000 square foot warehouse in the Town of Wawayanda. Medline has already purchased the land which was zoned for its planned use, and has withdrawn its request for over $17 million in property tax breaks in an effort to move the project forward. Another ±1 million square foot distribution center, reportedly for Amazon, received planning board approval in late 2019. Local opposition to these and other projects continues in the Town, and it appears that Montgomery will impose a building moratorium while it revamps its master plan in response to ongoing opposition.

Absorption of industrial space in 2019 was below average with a total of ±785,000 square feet taken, of which approximately two-thirds was prime space. Most of this is space absorbed by companies which constructed or expanded their facilities in 2019, but other transactions include the purchase of a ±32,000 square foot building on Crystal Run Road in the Town of Wallkill by Freund Brothers Fish to produce Kosher sushi for their flagship store in Brooklyn; and the sale of a ±10,500 square foot building on Stone Castle Road in the Town of Montgomery to a concrete pumping business. Approximately one-quarter of the prime space absorbed in 2019 was through leasing transactions. Some of the notable rentals include the lease of ±31,000 square feet by ABC Supply, the sheetrock division of L&W Supply, on Bracken Road in the Town of Montgomery; the lease of ±20,000 square feet by Monroe Online Sales, and the lease of ±10,000 square feet by LEGOLAND New York Resort, both in the spec building constructed in 2018 on Cannon Hill Drive in the Town of Goshen; and the lease of ±17,000 square feet on Industrial Drive in the Town of Wallkill to AEX Group that provides “last mile” deliveries for healthcare industry suppliers.

As of year-end 2019, the total inventory of industrial space in the County, including older, less functional buildings, was 30.4 million square feet, with a vacancy rate of 3.7%. With companies having such difficulty finding suitable space, consideration is increasingly given to repurposing and renovating older facilities. Absorption in non-prime buildings totaled approximately 260,000 square feet, with about 65% of this activity through purchase transactions. CoPart of Connecticut, a salvage car auction company, acquired a ±36,000 square foot former auto auction site on Route 17K in the Town of Newburgh; Prosperity Stairs and Rails purchased a ±30,000 square foot building in the hamlet of Johnson; Hemp Farms of NY acquired the ±24,000 square foot former Continental Organics facility in New Windsor for its growing and processing operations; and A&R Asta Fireplaces purchased a former coal, feed and lumber facility in the Village of Unionville for storage.

The beverage sector continues to grow in Orange County with popular brands expanding and newcomers entering the market. Equilibrium Brewery repurposed a ±27,000 square foot former bank office building on South Street in the City of Middletown to expand their brewing capacity and add an indoor beer garden and eatery. Tin Barn Brewing acquired the ±12,000 square foot former Jenack Auction facility in the Hamlet of Sugar Loaf with plans to open in early 2020.

The industrial sector will continue to grow nationwide with the need for properties to service e-commerce demand, and Orange County’s proximity to one of the world’s largest markets makes it a logical location for this expanding segment. Prioritizing and proceeding with the widening of Route 17/Interstate 86 will enable the County’s transportation infrastructure to accommodate this growth. So as some municipalities throughout the County commence the update of their comprehensive plans, they would be well advised to keep in mind where the bulk of the new tax revenues are coming from.

 

 

The Office Market in 2019

In 2019, just one new office building was constructed in Orange County, NY, slightly increasing the inventory of Class A office space at year-end to 4.8 million square feet. It is the largest office building to be constructed on spec in over a dozen years. Known as Professional Square, this four-story ±34,000 square foot Class A office building is situated on Route 208 in the Town of Monroe, overlooking Route 17/Interstate 86. Catering to the burgeoning community of Kiryas Joel, the building is already 97% occupied with over 30 local businesses.

The vacancy rate for Class A office space rose from 9.4% last year to 10.3% by year-end 2019. Even with this high vacancy, some tenants still had limited options. Since most of the tenants in the County occupy under 5,000 square feet, the majority of the available space is smaller in size. But for the larger users seeking 25,000 square feet and up, only four buildings in the County could accommodate them. Seeking to rectify that, Simone Development Companies, a privately-held full service development firm that is active in the Tri-state area, has acquired the New York International Plaza campus in New Windsor, adjacent to the rebranded New York Stewart International Airport. In the late 1990’s, Albany-based First Columbia was chosen by the Town of New Windsor to develop this property, and had good success with several buildings. However, in 2012, after the difficult economy of the last recession, they walked away. In 2019, Simone announced plans for Class A office, medical office, retail, restaurants, hotels, conference center, and more. Two Class A office buildings are initially proposed, a ±40,000 square foot three-story and a ±60,000 square foot three-story medical office building. Simone has a large roster of tenants in the 7 million square feet of commercial properties they presently own in the NY metropolitan region, and luring some of those up to the Hudson Valley is a likely part of their target audience.

In 2019, approximately 145,000 square feet of office space was absorbed in Orange County, the lowest level in the last five years. Nearly 90% of this was through leasing transactions, and over 80% of the total activity was in Class A buildings. With little to no rent growth over the years, tenants are able to lease Class A space at very reasonable rates. There was, however, one notable purchase transaction: in New Windsor, Premier Medical Group, an all-specialty medical practice with offices in Dutchess, Ulster and Orange Counties, purchased a ±12,000 square foot office building on Little Britain Road / Route 207. On the leasing side, KC Engineering & Land Surveying signed a lease for ±17,600 square feet on Governor Drive in the Town of Newburgh; Orange Regional Medical Center leased ±14,000 square feet at 75 Crystal Run Road in the Town of Wallkill; and National Tax & Finance Services leased ±6,700 square feet on Temple Hill Road in New Windsor. In the Village of Goshen, Maser Consulting, an engineering and consulting design firm, leased ±4,600 square feet on Hatfield Lane, and Legal Services of the Hudson Valley leased ±4,500 square feet on Erie Street; and Mundi Financial leased ±4,400 on Crystal Run Road in the Town of Wallkill.

The total inventory of both Class A and non-Class A office space remained unchanged at 6.2 million square feet, and the total vacancy rate increased slightly to 10.0%. Older, less functional facilities in the County’s cities and villages, once touted as potential office spaces, continue to be redeveloped into residential apartments, eating and drinking establishments, and other retail shops that reinforce ongoing revitalization efforts.

The medical office sector continues to generate the most office activity. After their 2018 merger with Bronx-based Montefiore Health System, the St. Luke’s Cornwall Hospital was renamed Montefiore St. Luke’s Cornwall. The hospital broke ground on the remodeling of the Newburgh campus’ emergency department, and recently opened both a kidney care center and a rehabilitation/chronic care facility on its Cornwall campus. Cornerstone Family Healthcare, which took over operations of the Middletown Community Health Center in 2017, announced its plans in 2019 to overhaul their Port Jervis offices on Hammond Street, and to renovate and expand their Benton Avenue clinic in the City of Middletown.

As the nature of office work continues to evolve, the softness in the market for office facilities, in general, will likely persist in Orange County, as is the case in other suburban areas.

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