New York City is one of the priciest office markets in the world, with Manhattan housing the core business district of the city. The borough has always been the place to be — the ultimate live-work-play destination that houses the big corporations and the talent that recruiters look for.
Overall, office asking rents in Manhattan fell only slightly during the third quarter to $74 per square foot, per Cushman & Wakefield, while rents in some submarkets continued to rise. In highly appealing office clusters like Hudson Yards or the Plaza District, asking rents often exceed $100 per square foot, meaning small- to mid-sized tenants are often priced out of these areas.
Alan Rosinsky, Metro Manhattan Office Space
Historically, areas outside Manhattan have not been as desirable for office users. Yet with rising housing prices, many New Yorkers have been priced out of the borough, forcing them to either downsize or get off the island.
Developers have taken advantage of this trend and started investing in residential projects in Brooklyn and Queens in order to attract homebuyers. Businesses soon started to take notice, and many office-using tenants have since migrated or expanded into the outer boroughs, primarily Brooklyn and Queens.
Small Leases Drive Brooklyn
Brooklyn has always been regarded as “Manhattan’s little brother,” never really able to catch up with the island and attract the same level of investor interest. Once a manufacturing powerhouse, the borough’s waterfront has long sat idle, with its vacant factories and warehouses painting a
not-so-pretty picture for investors.
However, as the popularity of adaptive reuse projects has spread in major cities, Brooklyn’s neglected industrial buildings have been transformed into the type of modern, industrial-chic
office space that millennials and startups alike are drawn to. Numerous such revamps have taken place in the borough in recent years, at the Navy Yard, Industry City, Empire Stores, Dumbo Heights and Hecla Iron Works.
Startups and mid-sized companies, especially those in industries like tech, media, fashion or design, are particularly drawn to this type of office space, which also commands much lower prices than its Manhattan counterparts.
Various big names have opened office outposts in Brooklyn in recent years, including Etsy, Amazon, Tesla, Time Inc., Netflix and WeWork. The latest name to join the roster is Rent the Runway, which relocated from Midtown South to 10 Jay Street in Dumbo this year, taking more than 83,000 square feet of office space.
The City of New York has also renewed its 342,000-square-foot office lease at 250 Livingston Street in downtown Brooklyn, while Nanotronics and Bednark Studios have set up shop at the Navy Yard. Overall, office leasing activity in Brooklyn reached the highest level since 2015 during the year’s first nine months, according to CBRE.
Yet some industry specialists claim that Brooklyn’s office market has not yet managed to live up to its potential. Several major office projects are currently underway, including Dock 72, which will be anchored by WeWork, One Willoughby Square and The Refinery at the Domino Sugar Factory. However, no major leases like those we see in Manhattan have been signed yet.
Instead, the Brooklyn market is appealing to startups or businesses in early stages of growth, with smaller leases being much more common. Prices at this end of the Brooklyn Bridge are also much more appealing, with office asking rents hovering around $40 per square foot in the second half of 2019. The market is still waiting for its big break — that one massive corporate lease that paves the way for other big-ticket tenants to move across the bridge.
Some office market experts believe that the waterfront area still lacks the infrastructure and transportation to handle all the new development. However, as high-quality residential projects continue to attract renters and homebuyers to the borough, companies will be eager to take advantage of a growing talent pool that prefers to work near home and avoid a commute to Manhattan.
Queens Thrives Sans Amazon
Early this year, Amazon selected Northern Virginia over Long Island City to house its second headquarters. At the time, many industry experts expected the Queens office market to lose momentum due to this move.
Instead, all the publicity surrounding the new Amazon headquarters seems to have worked in favor of the Queens office market. The fact that Long Island City was one of two locations that the e-commerce giant selected for its second home signaled to investors that the market was worthy of their capital.
Long Island City has untapped potential for development, and the Amazon HQ2 race was the spark needed for ignition. Developers wasted no time in flocking to the area, and various commercial and residential projects are currently in the works.
These projects include Skyline Tower, which will be the borough’s tallest when completed in 2021, Queens Plaza Park and The JACX. Developers are also working with city officials to sketch out plans for the 28 acres of land by Anable Basin, which is where Amazon was supposed to set up shop.
This goes to show that even though it didn’t follow through, Amazon put Long Island City on the map, and office development is likely to continue at an accelerated pace. In the meantime, leasing activity has been robust, totaling 558,000 square feet in the first half of 2019, a 170 percent increase over the first half of 2018, according to CBRE.
Amazon didn’t end up taking over space at One Court Square, but the building nevertheless found new tenants in Centene Corp. and Altice USA. Other big names that have also recently committed — or renewed — in Long Island City include Estee Lauder, Macy’s and IKEA, the latter of which will open its first Queens location in the Rego Center mall in 2020.
The new office inventory in Queens will be well-suited for tenants that are looking for large floor plates but which can’t afford the pricey towers at Hudson Yards, where rents often exceed $100 per square foot. By comparison, office asking rents in Long Island City closed the second half of 2019 at $41.77 per square foot, per CBRE.
—By Alan Rosinsky, principal broker, Metro Manhattan Office Space. This article first appeared in the November/December issue of Northeast Real Estate Business magazine.