Tariff fears chill Long Island industrial real estate

With tariffs imposed or even the threats of tariffs being imposed by the federal government, businesses face a good deal of uncertainty. And some of that uncertainty may be impacting the industrial real estate market on Long Island, where those same businesses need to decide whether to buy or lease space.

Mario Asaro, president of Industry One Realty Corp. in Melville, says the Trump administration’s flurry of tariff announcements could be cooling down activity in the industrial real estate market on Long Island. “We sell and lease to users and the ‘unknown’ is the main problem, which gives company owners reason to pause any major long term moves,” he says. “So, demand has diminished significantly—buildings are being shown less than one would expect.”

Concern over tariffs may indeed be contributing to a recent slowing of industrial leasing on Long Island, as reports show there was just a total of 440,930 square feet leased here in the second quarter—a 16% drop from the previous quarter and the lowest leasing activity in the last two years.

However, other brokers say tariffs have yet to have any significant impacts on the industrial sector.

“Demand for Long Island industrial space largely remained resilient in the face of higher tariffs and increased economic uncertainty,” says David Pennetta, executive managing director of Cushman & Wakefield of Long Island in Melville. “Overall, net absorption exceeded expectations, driven by the enduring trend of large corporate users’ flight to high quality space, which was absorbed by buildings built in more recent years.”

Doug Omstrom, executive vice president for the Northeast Industrial Region at JLL in Melville, agrees that some positive second quarter news from the industrial market shows that businesses have largely continued with their plans despite the economic uncertainty, although new development has slowed.

“We have had a few companies state that they wanted to take a wait-and-see approach, but most companies are continuing their expansion if they have a lease expiring or if business is strong,” says Omstrom. “There has been no real effect on industrial leasing; the class ‘B’ industrial space is very strong. However, new construction has halted completely, as we need to lease the 2.3 million square feet that is currently up and vacant.”

While the market remained resilient by showing positive absorption of space in Q2, the looming threat of tariffs may still threaten long-term industrial growth. “Tariff uncertainty introduces risk into supply chain planning and operating cost projections, which in turn leads tenants to pause on long-term lease commitments or reduce their size requirements,” Pennetta says. “This forces developers and investors to reassess pro formas, delaying approvals, construction starts or closings.”

Pennetta believes the consequences of this will soon be felt. “We expect to see more businesses rethinking negotiations on lease terms, especially for options like free rent, delivery timing, or tenant improvement allowances,” he adds.

“Many manufacturers who rely on products from China, as well as distributors of household goods, clothing and other merchandise that comes from overseas have had to change their strategies,” says Asaro. “[These] companies would be inclined to proceed with their plans to relocate to better buildings for their needs, but they don’t know what their needs will be as a result of this uncertainty.”

Asaro says that while business owners still largely support the president’s economic policies, a number of them would have preferred a more decisive application of tariffs. “Many did support [Trump] for president, but are not so happy about how this trade war is affecting them. They would have preferred a lesser, flat tariff that was less of a shock to the entire trade system.”

Some of the ire directed at the White House over the trepidation in the industrial sector may be misplaced, Pennetta suggests. “Some of the pullbacks occurred before the tariff wars,” he says. “Year-to-date, we haven’t seen new completions and there is currently 850,000 square feet under construction. While asking rents have increased 25 cents over the first quarter of 2025, negative absorption of -686,000 square feet continued over the last three quarters.”

In Brief:

• Q2 industrial leasing on Long Island fell 16%—lowest in 2 years
• Some businesses pausing lease or purchase decisions amid tariff threats
• New construction slowed as 2.3M sq. ft. of space remains unleased
• Brokers divided on whether tariffs are the primary driver of slowdown
• Rising interest in last-mile and smaller flex spaces due to uncertainty
• Long-term tariff effects could lead to reshoring of light manufacturing

Nevertheless, the tariffs will change the type of activity the market sees. “We will see pressure on construction pricing, potentially slowing speculative development, despite high demand,” Pennetta predicts. “There will be greater interest in last-mile and smaller flex units, as tenants hedge risk by staying agile.”

Some brokers even believe the industrial policy changes could bring businesses back to Long Island. “Over the longer term we will see some reshoring of light manufacturing, which could benefit areas like Yaphank, Ronkonkoma and Calverton,” he adds. “Developers will continue to favor projects with high clear heights and flexible loading configurations, attracting a wider mix of tenants.”

Omstrom sees sales remaining steady in the coming year, as supply stays low. “We feel that the market will continue to be strong in the near future, especially the user sale market, which is very strong on Long Island as we have a shortage of buildings for sale,” he says. “National tenants will probably be hesitant to expand as rapidly as they were before the tariffs have been introduced.”

Though the brinkmanship of the tariff threats has yet to cause a significant downturn, Asaro believes waning activity could eventually jeopardize the industrial real estate market. “Unless there is what is perceived to be a reasonable compromise on tariffs, the trade war will continue, and so will the stagnation,” he says.