Downtown Brooklyn’s Massive Multifamily Wave Is A Retail Gold Mine
Most of our recent coverage about Brooklyn has been fairly ominous, with developers and investors growing more cautious on the once white-hot market and reports of a potential multifamily glut forcing landlords to offer bigger concessions.
More than 14M SF has been added to the market since 2004 and more than 26M SF across 7,500 units are expected to come online in the next few years, but Hodges Ward Elliott SVP Daniel Parker (pictured) says this focus on multifamily has caused the many to ignore the retail gold mine these units can bring.
It’s important to remember, Daniel says, that almost all of these units are uniformly doorman product, with rents hovering in the upper $3k, lower $4k/month range. Qualified households, then, will need to show an income of $150k or more to sign a lease.
The new residents of Downtown Brooklyn have already driven the area’s annual income from approximately $74k in 2010 to $103k in 2014, a 38% increase. That’s four times the growth of Manhattan, five times the growth of Brooklyn as a whole and almost 13 times the growth of the US.
The number of young residents has increased 29%, and the number of residents making more than $100k a year has gone up 119%.
“You have a massive pipeline of luxury apartments, filled with an economically homogenous demographic,” Daniel tells Bisnow, "but there's little retail catering to it."
He says the Smith Street corridor south of Atlantic has "major undersupply" of large stores, with only three privately owned buildings between Fulton and Warren streets, with more than 100 feet of frontage.
Daniel and his team surveyed pedestrians on the corner of State and Smith streets—one of Brooklyn’s most popular thoroughfares—asking them what kind of retail they’d like to see added to the market.
Most of the answers revolved around either fast-casual dining, additional grocery store offerings, service retail or stores that need to offer an in-person experience to sell their wares—like furniture, photography equipment or home goods.
“Most people are pretty confident about ordering a book online, but nobody just orders a couch or camera unless they see it,” Daniel says. “And, naturally, all these people setting up new apartments are going to buy new things, so names like Fishs Eddy, Crate & Barrel, Pottery Barn and West Elm came up a lot.”
Daniel says retail investors looking two to three years down the line need to turn their eyes to the natural foot paths of Downtown Brooklyn. With the L line closing in 2019, many Williamsburg and L-line neighborhood residents are going to migrate south to the more well-connected Brooklyn hubs.
“In the same way Downtown Manhattan retail rents jumped 40%—from $180/SF in 2012 to $250/SF in 2014—thanks to an influx of new luxury apartment supply and Millennial TAMI employees, the market should be asking how Downtown Brooklyn retail rents will change when the same phenomenon happens there.”
Cushman & Wakefield retail services executive managing director Diana Boutross says Downtown Brooklyn's growth mirrors that of the Upper West Side, all the way down to the Brooklyn Academy of Music serving as Brooklyn’s version of Lincoln Center.
This growth blueprint has been found throughout Brooklyn, she adds, starting in Park Slope 20 years ago, spreading to neighborhoods like Brooklyn Heights, Boerum Hill, Red Hook and Bed-Stuy. So it was only a matter of time before it started hitting Downtown. C&W even included Sunset Park as its top "Cool Street" of retail for 2016.
Douglas Elliman Real Estate retail leasing chairman Faith Hope Consolo says concerns of oversupply are "only at the margin" and Downtown Brooklyn is one of many neighborhoods now attracting attention from global brands pushing eastward from Williamsburg.
But, while she agrees that service retail and home goods stores will thrive Downtown, she doesn't think these will be the only ones that can do so.
"This question of online versus storefront has been shown to be a non-sequitur," she tells Bisnow, explaining how very few consumers have a "one or the other" mentality analysts claim they do.
"One mall owner told us about a brand building up a strong e-commerce business and decided to close the store in that area. What happened? E-commerce sales there disappeared," she says.
With this new demographic and Acadia Realty Trust and Washington Square Partners' City Point bringing more than 700k SF of retail, Downtown Brooklyn retail seems guaranteed to thrive, but we'll have to wait and see which company takes the next move.