Long Island City Office Market Well-Placed To Absorb Excess Space
When Citigroup moves out of Savanna’s City One Court Square in Long Island City in 2020, it will leave 1M SF of office space behind it.
There is no doubt the building has an impact on the overall market in the neighborhood. Last quarter, Long Island City’s Class-A office vacancy rate hit 17% according to Cushman & Wakefield data, attributable to a 293K SF chunk of space at One Court Square becoming available during that time.
But Long Island City developers and brokers say the neighborhood’s office market is positioned to handle the space that is available. With new buildings on offer, many of which come at a discount to Manhattan, the area is increasingly able to lure tenants.
Leasing activity was ahead of last year and asking rents jumped nearly 9% to reach $43.55, a record high. The outlook for the office market, as well as the retail and rental markets, will be discussed at Bisnow’s Long Island City State of the Market event Sept. 21.
"We are excited about the traction we have already received,” said Savanna Managing Director Andrew Kurd, who is heading the leasing team at One Court Square.
The building is appealing to tenants that are expanding in the neighborhood or coming from other boroughs, he said. He believes the flood of new residential units in the area bodes well for its future.
“We sit right on top of the E, G, M and 7 subway lines," Kurd said. "When you combine that with the value proposition, it is very attractive to tenants.”
The city’s REAP program, which provides tax breaks to companies moving out of Manhattan, is a strong motivator for tenants.
“The economics are so powerful, a lot of companies are considering it,” C&W Senior Managing Director Joe Grotto said. “[Long Island City] is now on the map for a lot of people.”
It is not just for companies that want to totally relocate, Grotto said. Many consider the area as a convenient place for back offices. He pointed to the the former Apple Tag & Label factory building at 30-30 Northern Blvd., now known as the Apple Building, that has been turned into office and retail.
One of the first tenants there was ACE Center for Workforce Development, a nonprofit that helps homeless people find jobs, which moved from Manhattan to make use of the cheaper rents.
“They wound up relocating … for probably a third of the rent that it was going to cost them when they had been located in SoHo,” Grotto said.
Developers are increasingly banking on the health of the Long Island City market, buying up assets to convert into office space. Normandy Real Estate Partners joined with Keystone Equities and GE Capital, for example, to spend $39M on an industrial building at 25-11 49th Ave. in Long Island City earlier this year. The group is planning a 238K SF office building there.
In May, The Kaufman Organization acquired a 99-year ground lease on the Cardinal Building, a 65K SF building at 21-01 51st Ave. in Hunter’s Point in Long Island City, which it will convert to office space. Meanwhile, Tishman Speyer is building a 1.2M SF office project on Jackson Avenue called JACX where WeWork and Bloomingdale's will each open large offices.
Plaxall Realty President Jonathan Drescher said there is also significant demand from industrial users.
“Light science, light industrial and commercial mixed-used — it works really well together,” he said. ”You don’t want to throw out the baby with the bathwater … We want to come up with solutions where light industrial can flourish.”
Plaxall is working to obtain rezoning that would allow it to create a mixed-use district at Anable Basin. Plaxall’s vision would bring 5,000 units, 335K gross SF of space for creative production and light industrial uses, and a publicly accessible esplanade.
While Long Island City is swimming in new apartment buildings, many believe the oversupply is a short-term problem that will ultimately add value to the area. There is no doubting investor appetite is strong.
A Carlyle Group-managed fund is set to break Queens sales records, for example, with its reported $284M purchase of luxury apartment building 1 QPS Tower.
“Rewind 10 years, there was no place to buy milk [in Long Island City]. There was no place to go and have dinner. Now there are many places, and still room for more,” Simon Baron Development President Matthew Baron said.
His firm developed The Crescent Club, a rental building at 41-17 Crescent St. in 2012 and sold it the following year. Now, Simon Baron is leasing ALTA LIC, a 467-unit rental building at 29-22 Northern Bvld., which features co-living units managed by Ollie in the bottom third of the building.
Baron said that, in the past, people were only moving to Long Island City to get a cheaper rent in a convenient location. With the growing office market, restaurants, retail and growing infrastructure, it has become a desirable destination in its own right.
“Now you have all the stuff that a residential neighborhood needs,” he said. "We think it’s only going to continue."
Baron, Drescher and Kurd will all be speakers at Bisnow's Long Island City State of the Market event Sept. 21 in Related and GreenOak's Paragon Building.