Investors continue to bet on Long Island's sure thing.

Speculative development and strong investment sales continued to dominate Long Island's commercial real estate landscape in the second quarter of 2005.

Year-to-date leasing activity totaled 813,000 square feet with 356,000 s/f recorded during the second quarter, according to CB Richard Ellis' 2nd Quarter 2005 Office Market Report. The top leasing deal consummated during the second quarter of 2005 was a 90,000s/f relocation by 1-800-Flowers.com at 1 Old Country Road in Carle Place, NY.

Leasing activity slowed slightly from the 458,000 s/f posted during the first three months of the year, due primarily to the decrease in the size of the leases signed. Despite this fall off, average asking rental rates continued to climb. Since June of last year, asking rents have increased by a significant $1.10-persquare-foot, to end the quarter at $25.60-per-square-foot.

As a direct consequence to the speculative development taking place throughout Long Island and the space returned to the market due to corporate consolidations, the availability rate jumped by 3.2 percentage points to close the quarter at 12.7 percent. Over the past 12 months, 586,000 square feet of office space has been added to the market's overall supply, all coming from new speculative construction projects.

In addition to the speculative construction projects, two large blocks of office space returned to the market as a result of bank consolidations.

This boosted the supply of large contiguous blocks of space over 100,000 square feet to seven, from the three such blocks available in the last quarter. In contrast to direct space for lease, sublease opportunities in Long Island dropped by 6 percent from a year ago, now at just 679,000 square feet--a dramatic drop when compared to less than two years ago. At that time, the space available through sublease exceeded 1.2 million square feet.

Capital market fundamentals such as low interest rates, an expanding local and national economy and the availability of investment capital continued to drive activity.

In fact, five major transactions closed in the second quarter of 2005 including the sale of JP Morgan Chase's 100 Duffy Avenue in Hicksville for $29.2 million; Heritage Management Company's acquisition of 990 Stewart Avenue in Garden City for $37 million; Swiss International Airlines' disposition of 41 Pinelawn Road in Melville for $11.5 million; and AEW Capital Management's $83-million purchase of 3 Huntington Quadrangle in Melville from Broadway Real Estate Partners. Looking forward, Reckson Associates has agreed to acquire EAB Place,. the 1.1-million-square-foot trophy office complex located in Uniondale for approximately $240 million from Galaxy Partners, while 1979 Marcus Avenue, a 350,000-square-foot, Class A property in Lake Success is currently under contract.

On the industrial front, steady demand for product and low supply has translated into a seller's market, with asking sale prices for industrial properties exceeding $100 per sq. ft. in several markets. Currently, Long Island has one of the nation's lowest availability rates for industrial space at 6.8%, down from 7.5% last year.

Due to the lack of developable land in both Nassau and Suffolk Counties, owners and developers are converting existing industrial properties into office, retail and residential use. Currently, there are only two notable industrial property redevelopments in West Hempstead: a 150,000-squarefoot residential conversion at 910 Orlando Street and a 285,000-squarefoot development on 7.5 acres at 420 Hempstead Turnpike.

"While not spectacular as compared to the previous few quarters, Long Island's commercial real estate market continued on a steady pace," said Tom Krieger, Managing Director of CBRE's Long Island offices.

"Demand was strong, speculative developments continued unabated and investment sales are on pace to surpass even the records levels set last year."