Will 2019 Be The Year For Brooklyn's Long-Awaited Office Breakout?
Millions of square feet will be added to the Brooklyn office market in the next few years. And while it has been nearly five years since a big-name tenant has made a market-moving splash in the borough, Brooklyn advocates think 2019 will be the year that changes.
More than 6M SF of new office space is due to become available in Brooklyn by the end of 2022, according to Colliers International, adding significant supply to the borough’s 55M SF office market.
Despite the pipeline's growth, little else has changed. Availability was at 15% last year, per Colliers, a slight increase from the year before. Average asking rents sat at $38.33 per SF, basically unmoved from 2017. And while there were several significant leases signed throughout the year, there still hasn’t been a market-shifting tenant to take space in the borough, and relocations from Manhattan remain sparse.
“2019 will be the year that you begin to see the more classic-style office users, some big accounting firm or law firm that will take a major stake in Brooklyn,” CPEX Real Estate Managing Partner Tim King said. “We are reaching critical mass of Class-A office space becoming available … [that] is maybe better than some of the product that is available in the city … It’s not your grandfather’s Brooklyn.”
There has never been this much Class-A office under development in Downtown Brooklyn, according to the Downtown Brooklyn Partnership, with 3M SF being built right now in that area.
Across the borough, projects like Heritage Equity Partners and Rubenstein Partners’ 25 Kent, Tishman Speyer’s DoBro Macy's redevelopment and Boston Properties and Rudin’s Dock 72 at the Navy Yard are opening their doors this year. Construction on JEMB Realty Corp.’s 500K SF office tower One Willoughby started last year, and, off the back of a $235M loan from Otéra Capital, is slated for completion in 2021.
The Rabsky Group reportedly wants to build a 942-foot, mixed-use building with 739K SF of offices at 625 Fulton St. and the City Council approved Alloy Development’s mixed-use project at 80 Flatbush in September after the developer agreed to shave the height of the building from 986 feet to around 845 feet.
"There’s a really active market that [is] looking in Downtown Brooklyn, we are seeing tech-related users, that especially have a creative bent, that are really looking hard at Brooklyn,” Downtown Brooklyn Partnership President Regina Myer said. “I believe that’s what is going to continue … Downtown Brooklyn remains competitive, the talent is here and the transport is here.”
Still, there has been growing concern about excessive office supply in Brooklyn for years now, as office space development has spread further into the borough. While many Brooklyn office landlords have pinned their hopes on large-scale tenants to lock down space, the reality is the smaller leases are still driving the market.
It has been nearly five years since Etsy signed its 200K SF lease in Dumbo Heights — which some considered a watershed moment for Brooklyn at the time, and a sign of things to come. Half a decade later, the deal looks more like an outlier than a harbinger.
“I think every developer who is building commercial space is waiting for that one Amazon,” TerraCRG commercial leasing managing director Caroline Pardo said. “They give themselves time … [and then] they all start to change their mindset. They realize it’s better to break down spaces.”
Pardo pointed to Building and Land Technology and Quinlan Development’s 41 Flatbush Ave. — where tech firm Blue State Digital has agreed to move to from SoHo — that now has a floor set aside for smaller, pre-built offerings.
“Sooner or later, the landlords will realize they need to change their strategy, and then they will be able to rent it out,” she said, adding that each submarket is experiencing different availability and demand. “The tenant mindset is flexibility.”
Last year, the public sector drove the major leasing deals in the borough. The New York City Department of Records and Information Services took 133K SF in Industry City, while the Brooklyn Lab Charter School took an extra 82K SF at 77 Sands St. The Vera Institute for Justice inked a deal for 35K SF at Industry City, joining media company Buck, which took 30K SF there.
All were solid leases, but unremarkable moves in the context of a New York City office market that saw 42M SF of leases signed in 2018 and dozens of deals larger than 100K SF.
While many consider Amazon HQ2’s move to Long Island City a boost for the outer boroughs’ office market that will have a ripple effect in the coming decades, Colliers Executive Director Craig Caggiano pointed out that tech tenants have not migrated in vast numbers to Brooklyn as some observers predicted they would, particularly in large spaces.
“We’ve seen some tech companies migrating to Brooklyn, but it’s more creative and fashion tenants, architecture and engineering,” he said. “What happens when Amazon puts up their tent stakes, does that mean Long Island City in itself becomes another tech hub within New York as a whole that competes with both Manhattan and Brooklyn?"
But Rubenstein Partners Director of Investments Jeff Fronek, whose firm co-developed 25 Kent Ave., said 2019 is shaping up to be a strong leasing year for the borough, barring a major downturn.
The 500K SF 25 Kent office and manufacturing building in Williamsburg is complete, but still in the final stages of agency signoffs, Fronek said. It is the first in the borough to be built without an anchor tenant in decades, and has no announced leases yet — though the developers say they are close to locking one down.
“The trend is taking slightly less space, investing more in their space and taking a higher-quality space — those trends favor us,” Fronek said.