Case Study: Whole Foods' Outsized Impact On One Brooklyn Neighborhood
If you haven’t been there in the past five years, you’d hardly recognize the intersection of 3rd Street and Third Avenue in Gowanus today.
It’s where Whole Foods opened its first Brooklyn location in early 2014, and a look at the area’s retail numbers begins to tell the story of the impact the grocer has had.
CPEX’s Ryan Condren puts retail asking rents in the area within a few blocks in the high teens/SF before Whole Foods first announced it was coming to the area about 10 years ago.
In those days, the corner lot was rubble-strewn, with no visible sign it would become a retail hub for nearby affluent neighborhoods like Park Slope and Carroll Gardens, which it sits directly between.
“There was really no reason to go there unless you worked in one of the warehouses,” says Ryan, pictured below. Now, he says, he’s seeing asks that approach $70/SF, with the area’s more established retail corridors, like Union Street, regularly seeing deals close in the $60s/SF.
“You’ll never be able to say one store transforms everything,” Ryan says.
“But what they’ve done since opening has pulled people to the area from a much greater radius. They’re such a unique tenant that people are willing to drive 15 to 20 minutes or take an extra train stop to go there. And because of that, the neighborhood’s retail is much more on the map than it would have been.”
When an area’s retail scene gets that kind of jolt, the impact can spill over into other asset classes, too.
Case in point: 300 Nevins St. It’s a full-block warehouse about five blocks up the banks of the Gowanus Canal from the Whole Foods.
Property Markets Group picked it up for $14M in a deal that closed at the beginning of 2013—about a year before the Gowanus grocery store opened.
The developer, known for high-end luxury projects, did pretty well on the deal. It worked out to about a $70/BSF transaction.
According to Terra CRG’s Dan Marks, if the same site traded today, it would fetch in the ballpark of $300/BSF. (As of now, PMG has not announced plans for the site—likely because the land’s not zoned for residential development.)
While rapid appreciation has caused an uptick in the volume of transactions in the area, Dan says it’s been slowed somewhat because many longtime landlords are holding out, just like PMG is, for a rezoning to allow for more high-density residential development.
During the Bloomberg administration, such a rezoning was on the agenda, but the neighborhood didn’t make the cut when the de Blasio administration came up with its list of 15 areas to target for rezonings to help hit the goal of 200,000 new units of affordable housing.
But the striking thing is that even without a rezoning, rapid growth in values has reached the point that newer entrants to the area have begun making their exits.
In January 2014, LIVWRK and FirstMark Capital picked up a warehouse building right across the street from Whole Foods, at 92 Third St, converted it to office and signed up tenants like Genius Media and CoWork.rs.
Just a year and a half later, the partnership was ready to get out, and took $73M from Samson Management for the 90k SF property.
The ballooning values in the neighborhood extend ever further afield of the center of gravity Whole Foods helped create.
Dan’s team just closed on a development site near the corner of Third Ave and 14th St, good for 16k BSF. It went $2.3M, or $163/BSF. The new owners reportedly have plans to build a ground-up office project—something that would have been just about unthinkable in the area just a few years ago.
Whole Foods isn’t the only reason the neighborhood’s in the midst of a mixed-use boom, but Dan sums up the chain’s impact like this: “Whole Foods helped prove the theory that the right retail anchor could take things to another level in Gowanus.”