Brooklyn’s Office Inventory 'Crisis'
Brooklyn’s office market has seen some high-profile additions lately, but Apts & Lofts’ Chris Havens says demand and supply are so out of sync that it’s putting a strain on the borough’s economy. In this interview, Chris digs into the causes of this "crisis" and what ought to be done about it.
Bisnow: How tight is the office market in Brooklyn, and why’s that a problem?
Chris: This is a crisis. Just as Brooklyn is reaching a new peak, just as creative businesses are booming and taking a larger share of the NYC economy, there isn’t enough space for them to grow. This inhibits job creation directly. And these are not the six-figure jobs of Wall Street, but are the five-figure college graduate jobs and the entry-level jobs for non-college folks plus the multiplier effect of all the new employment. Bread-and-butter jobs of the new economy plus all the support services that funds. Brooklyn leads the city in job creation, and has the lowest office vacancy rate.
Bisnow: How will we add more jobs with a space shortage?
Chris: No one knows for sure, but the best guess I’ve heard is that there’s a 2.5% vacancy rate. A huge share of that vacancy’s at just two places: Dumbo Heights and The Empire Stores at 55 Water St. Job creation is obstructed by a tight office market. Tenants either can’t find space, can only get smaller space than they want, or they can’t expand in the buildings they’re in, so it’s very hard to add positions if they need to. This has happened in NYC before, in the 1940s, in the 1980s and again in the 2005-7 pre-crash boom.
Bisnow: Will we ever see $70/SF office rents in Brooklyn?
Chris: We are about to. There are deals working now at that level in first-rate loft space in Williamsburg, in a top loft building on the North Side. You’ll also see some rents that high in the Empire Stores and smaller spaces at Dumbo Heights this year, and other spaces next year. And maybe in new construction space in Williamsburg as well.
Bisnow: The first ground-up spec office building in Brooklyn in decades is about to break ground in Williamsburg. Why’s it been so long, and what’ll it take to get more ground-up office built in the borough?
Chris: Spec buildings are rare in the last decades anywhere in NYC. They’re very tough to finance. It’s not a zoning issue. It’s financing. Office buildings like MetroTech and Renaissance Plaza were pre-leased. Ground-up is coming, with Toby Moskovits's project at 25 Kent leading the way. What it takes is a great tenant with vision and a great developer. We have the latter in Brooklyn but we need the former.
Bisnow: Are there some steps being taken that you’ve seen towards alleviating the squeeze? Anything that hasn’t been tried that should be?
Chris: There are folks buying buildings to make more office space, but they are focusing on large floor plates, which helps Manhattan tenants (and Brooklyn in general) but not Brooklyn tenants, who are mostly looking for smaller spaces as they scale up. What hasn’t been tried is zoning. We need to up-zone M zone districts so we can create more light industrial space where possible, way more office space and thus more jobs. Zoning is the key here. There are estimated to be over 50M SF of commercial air rights that could be unlocked by moderate up-zoning, just in Brooklyn.
Bisnow: One of the places you lease office space is 1000 Dean St. Why do you think Goldman Sachs went in on that project in an area with basically no office around it? Why wouldn’t they just do a condo conversion like everybody else?
Chris: It’s M zoned, which means for manufacturing, so it’s for commercial use only. Condos weren’t an option. Goldman Sachs Urban exists to do projects like this. They got it, they understood the value to Crown Heights of something like this. If it was residential there would be five to 10 jobs there. Now there will be over 400.