What Does Brooklyn's Status As A Top US Office Buyer's Market Mean For Its Future?
Brooklyn being a white-hot office market isn’t really a surprise to most, but how hot it is may raise a few eyebrows.
The Urban Land Institute’s 2017 Emerging Trends in Real Estate report, which surveyed 1,500-plus CRE pros, ranks Brooklyn as the US's top office buyer's market by a 10% margin, with 53% of its survey respondents advocating purchasing offices in the bustling borough, rather than holding or selling.
This confidence is somewhat surprising, since the report itself hints at a potential slowdown in job and Millennial population growth and doesn’t factor in the wave of office supply hitting the market in the next few years.
Although Brooklyn players weren't sure if this marked the beginning, middle or end of Brooklyn's office boom, they believed that the borough still had the strength to last through several upcoming disruptions, like the L train shutdown.
TerraCRG partner Dan Marks (pictured) isn’t ready to play fortune teller just yet. While demand has run up tremendously over the last few years and fundamentals remain strong, he says, there’s plenty that can change in the next few months that could help or hurt, such as Gowanus' potential rezoning.
“We still have to see how strong the demand for space really is and how much tenants will be willing to pay,” he tells Bisnow.
Eastern Consolidated senior director Andrew Sasson’s unsure if this report will shake Brooklyn’s TAMI-dominated atmosphere, believing a major firm from another business sector moving to the area will be a more significant catalyst.
After all, Bestreich Realty Group (BRG) VP Adam Lobel notes, TAMI tenants love Brooklyn’s unshakable cool factor, and it can’t be found anywhere else.
And when a company factors in the commercial tax for renovating a commercial building and the city’s relocation program benefits, Cushman & Wakefield vice chairman Stephen Palmese claims it could cost companies “almost nothing” to move to Brooklyn. That's quite the incentive, especially for cash-strapped, creative startups.
Referencing the “war for talent,” Rubenstein Partners NYC director Jeremiah Kane (second from right, seen here with Heritage Equity Partners CEO Toby Moskovits, Department of City Planning executive director Purnima Kapur and Brooklyn Chamber of Commerce CEO Carlo Scissura) believes FIRE companies like JPMorgan could set up ancillary offices in Brooklyn to tap into the younger workforce.
Stephen thinks Jeremiah’s theory is unlikely, as multinational firms prefer Manhattan offices for convenient access to colleagues and the appeal to foreign clients.
What the report will bring about, Dan says, is greater confidence and cooperation between institutional giants like SL Green and RXR Realty and local Brooklyn developers that he’s been seeing over the last few months.
“The local guys thrive on the institutions' confidence and investments,” he says, “and the institutions learn a ton from the local guys who’ve been in these markets for decades.”
Hornig Capital Partners managing partner Daren Hornig (pictured, left, with Boaz Gilad) admits he’s been invited to several lunches with multibillion-dollar real estate companies that wanted to pick his brain and explore potential deals.
Generally working on $1M to $15M multifamily, mixed-use and development deals, Adam says he’s also been asked for his opinions on trends. Jeremiah quipped that he's the local man for his national firm.
Is there anything that can hurt Brooklyn’s buyer's market? Maybe, Dan and Stephen say, but it’s certainly not the L train. Not only is it a short-term blip in the grand scheme of things that can be easily worked around by intelligent New Yorkers, but the L train will continue to operate within Brooklyn, connecting to Brooklyn’s eastern, cheaper neighborhoods.
Adam says BRG’s a perfect example of this concept. Originally priced out of neighborhoods like Williamsburg, the firm found its Crown Heights HQ at 1000 Dean St actually put it in the heart of Brooklyn with better transit for the partners, most of whom already lived in Brooklyn.
While Daren believes the L train’s shutdown could damage Williamsburg’s residential growth, he agrees that office tenants will quickly adjust their searches. “I already have people calling me about our Box Factory space in Ridgewood,” he says.
Jeremiah’s less optimistic, questioning if there’s enough office space to handle all those who use the L.
“You have tens of thousands of people that use that train every day. Brooklyn’s big, but it’s not that big,” he says.
Even if things do wane, Dan’s confident that Brooklyn can hold its own, as developers bring more complex and amenitized spaces to the market (25 Kent, Dumbo Heights, Industry City, the Navy Yard) that would stand out on the national market regardless of location.
Daren says office is an asset class requiring a different mindset and discipline, and keeping oneself afloat in a downturn requires long, market-sensitive leases with intelligent rent escalations.
But Adam (pictured) believes a downturn is unlikely, especially when considering the almost-concerning amount of residential units coming to market.
“You have so many new residents coming to the market and office is going to lag behind,” he says. “So yes, we’re very bullish on the office market.”