What It Means For Brooklyn Office That Every Industry Is Now The Tech Industry
The ongoing tech boom has managed to change nearly every industry in America over the last decade or so, whether by disruption, augmentation, or just simple osmosis. Now, there’s a new sector that’s being increasingly shaped by Silicon Valley’s gravitational pull: the Brooklyn office market.
Just in the last year or so, several high-profile office projects have begun to rise throughout Brooklyn, all marketed towards and designed for the needs of TAMI and creative sector tenants.
Two Trees Management has perhaps the most audacious game plan, recently announcing it hopes to land a single, massive tech firm à la Google or Facebook to take the whole of its Domino Sugar Factory’s 380k SF of offices.
But Two Trees is far from alone: RXR Realty and Westbrook Partners have 47 Hall; Industry City has its Building 19; Heritage Equity Partners and Rubenstein Partners have 25 Kent; WeWork, Boston Properties and Rudin Management have Dock 72, and Thor Equities has its massive new Red Hook development. That’s just to name a few.
All of these projects—save for Thor's just-announced behemoth—are currently underway, and all of them are banking on landing tech and creative tenants by offering huge floor plates, unique layouts and copious amenities.
Seth Pinsky (above) an EVP at RXR Realty and former president of the New York Economic Development Corp, says there’s no creative office bubble here—just developers responding to the new normal.
“There was a period of time when you had the technology sector, and then there was the rest of the economy,” he told Bisnow. “And what’s happened over the last few years is that the two have really become fully integrated.”
That's why he’s not worried about filling 47 Hall’s roughly 670k SF—aimed primarily at TAMI and creative tenants—when it comes online in a year or two. It seems no landlord is too worried: other than Dock 72, all of the above developments are being built on spec (unless you count the Nets practice facility atop Building 19 as an anchor).
Echoing that sentiment, Industry City’s CEO, Andrew Kimball (above), says it not only makes sense to cater to TAMI and creative tenants because of their strong job growth and overall performance, but also because the range of firms that could be considered tech, TAMI or creative has exploded over the last few years.
“There’s been a blurring of the lines and a merging of a variety of different sectors," he says, "in large part because new technologies have seeped into virtually every sector and created opportunities to make things in ways that weren’t previously possible."
Think drones, 3D-printing, digital fashion design or healthcare tech just for starters. Those types of firms and countless others are all among Industry City’s 400 or so current tenants.
Industry City’s Building 19 is a bit different, as its 500k SF has been billed as being marketed towards more traditional tech firms, with floor plates that range from 50k SF to 100k SF.
But Andrew says that’s more a question of size than anything else, and he’s confident even if he can’t land a huge tenant, some of Industry City’s current tenants or other local Brooklyn businesses will eventually grow into it.
“We’ve positioned ourselves so that we’re less reliant on a single massive tech company relocating here, but of course that would be nice,” he says.
Seth feels the same way about RXR and Westbrook’s 47 Hall.
“Clearly, if there’s a big, established tech firm that’s interested in 47 Hall we’d love to have them,” he says. “But we also recognize there’s a homegrown economy in Brooklyn, and we believe there’s ample demand among those companies alone to fill this building.”
Seth says there are other, more concrete reasons to be upbeat about the creative office market in Brooklyn, beyond a diffuse sense that the future belongs to tech.
(Above: Thor's new creative office project in Red Hook.)
“Traditionally, tech firms tended to locate in Silicon Alley, and that was mainly because it was reasonably priced and there was plenty of availability,” he says. “Now there’s barely any availability, and it’s gotten very expensive. So it just makes sense to look across the river for other options.”
That’s coming on top of the fact that supply in NYC’s office market in general, and Brooklyn’s in particular, has lagged demand for several years, because “the overall supply of commercial space has been almost flat for 20 years,” Seth says. “Even as new buildings have been brought online, older buildings have been converted to other uses.”
Even though the phrase “tech industry” now describes something much broader than it did in the late ‘90s, banking on its continued expansion isn’t without its risks.
(Above: Industry City's Building 19)
This year has seen a steep drop-off in VC funding for tech firms, and some tech firms are increasingly starting to go overseas for infusions of capital, a strategy pursued by private equity firms in the late aughts that was followed by a string of disastrous IPOs.
Several big startups have also been pulling back on the reins recently, with WeWork, Twitter and Snapchat, among others, announcing personnel cuts. Market watchers have pointed to these and other signs of stress as proof the tech boom has peaked.
Jim Glassman, a managing director at JPMorgan Chase and the bank’s head economist for commercial banking, isn’t sold on fears of a tech bubble though, and says even if the industry did take a nosedive, New York would be better positioned than most cities to ride it out.
“With the dot-com bubble, everything really took off and crashed within a very short amount of time; the whole thing lasted just a few years,” he says. “The current tech boom has been cooking for over a decade, and even if it hits a few bumps along the way I think the momentum behind those firms is still very real.”
“If something big did happen though, New York’s economy is so diverse that I couldn’t see it having a major impact,” he adds. “San Francisco, Palo Alto and San Jose might be a different story, but I’d expect New York to be pretty well insulated.”
But even if there is a tech bubble and it does burst, Ben Waller, a managing director at ABS Partners who heads up the brokerage’s Brooklyn office, also says he thinks the overall impact would be minimal when it comes to the Brooklyn office market.
“Even if, for some reason, the amount of space that’s being specifically targeted towards TAMI tenants does end up outpacing demand from those tenants,” he says, “I think other types of industries would be happy to work in those sorts of buildings.”
By way of example, Ben says he’s in talks with a “major international corporation” about taking space at Heritage and Lichtenstein Group’s Bushwick Generator at 215 Moore, one of several midsized creative office projects springing up in the area.
The prospective tenant, he says, is a traditional business that has hardly anything to do with the tech industry, but was nonetheless drawn to the space simply for the cultural cachet that comes with it.
“Corporate tenants that want to tap into the Brooklyn brand or access a new pool of employees are very much drawn to those areas and those types of spaces,” he says.
It’s an ironic twist of fate given that “traditional,” non-tech tenants have long dominated the size and shape of the national office market, especially in New York. But CPEX managing partner Timothy King says that’s where the future’s headed, at least in Brooklyn, because tech’s emergence has spawned not just a new class of tenants, but “a new class of ownership."
“The classic office tenant—your accounting firms, your big law firms, etc.—has dominated the New York skyline for a long time, but that’s slowly starting to come to an end,” he says.
“Now you’re starting to see a certain type of owner and developer,” like Two Trees, Kushner Cos or Jamestown, “who obsess over things like tenant amenities and retail curation, and generally have an entirely different style and approach to office than traditional ownership,” he adds. “The new owners are almost collaborators with their tenants.”