A new trend of converting empty big-box retail stores to medical facilities is driving low vacancy rates for medical office space on Long Island, according to the latest report from commercial real estate investment firm JLL.
The report, released Tuesday, shows that Long Island has more than 10 million square feet of medical office inventory and a 6% average vacancy rate across Nassau and Suffolk County for the fourth quarter of 2023. That’s lower than the 8% average in the outer boroughs, New Jersey’s 8% average and Manhattan’s nearly 16% vacancy rate. On the island, west and south Nassau saw the lowest rates of all at about 3% and 4%, respectively.
Matt Coursen, executive managing director at JLL, said population growth on Long Island and the aftermath of the Covid-19 pandemic is driving the growing demand. As more people have moved to Long Island from the city, health care systems are seeing the need for their services explode. According to the report, the market’s population is expected to grow by 7% between 2010 and 2024, with the number of people 55 and older projected to grow by nearly 30%.
As demand grew, the pandemic also decimated many big-box retailers, Coursen said. That left big spaces, such as the former Sears store in Garden City, empty for health care facilities to move in for cheaper than what it costs to build new facilities. As a result, NYU Langone’s takeover of the Sears building, and the first phase of Stony Brook Medicine’s move into 170,000 square feet of Smith Haven Mall space in Lake Grove, are some of the most prominent deals of the year, the report shows.
Long Island is already home to some of New York’s sprawling health systems, such as Northwell Health which operates hospitals and outpatient facilities throughout the island. Real estate strategy can be a big challenge for large systems, Coursen said, because they have to figure out how to use facilities they inherit, and whether consolidating services and staff is the right move.
Big-box retail buildings are a novel opportunity to explore that, he said.
The report also illustrates that large health systems are spending big money on big-box retail space. NYU Langone, which posted striking margins in 2023, paid $593 per square foot for its space at the former Garden City Sears, which will be an ambulatory care center. By comparison, other health systems paid under $300 per square foot for other locations.
However, unlike other parts of the tri-state area, Long Island has a limited amount of space under construction: less than 500,000 square feet, compared to nearly two million in Manhattan, Brooklyn and Queens.
Additionally, he noted, offering convenient preventive care will continue to be top of mind for Long Island health systems moving forward, mirroring trends in Manhattan. He expects systems to make real estate decisions based on where their current patients move and whether new incoming patients further increase demand for services.
JLL is headquartered in Midtown and published its first Manhattan medical market report last August.
Jacqueline Neber , 2024-03-15 10:33:03
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