Ryan Condren, CPEX Real Estate
It’s no longer a secret that Brooklyn is booming, particularly the borough’s retail scene. Retail rents have climbed continuously over the last five years. Retail density has increased almost exponentially. A recent study by CPEX of Brooklyn’s notable retail corridors (meaning areas with rents averaging more than $35 per square foot) found the number of these corridors has increased 80 percent in just two years.
But what’s driving Brooklyn’s record pace of retail growth?
Several market factors have created a perfect storm for Brooklyn’s retail resurgence. Development in the borough has peaked over the past two years, with permits for new residential developments up 116 percent in that timespan. Nearly 20,000 new units are in the pipeline, almost twice the number of permits in Manhattan and 149 percent more than the other outer boroughs combined. The office vacancy rate has dropped to 4.2 percent in Brooklyn, the lowest in the United States. Tourism continues to spike thanks to the borough’s noteworthy parks, the year-round arts and cultural events in the Brooklyn Academy of Music (BAM) Cultural District, and the Barclays Center’s sporting and concert events. In the meantime, hotel developments are trying to keep pace with the influx of tourists and visitors. In addition to the existing 50 hotels containing 4,272 hotel rooms, 21 more hotels will be in the pipeline by 2017.
The overarching desire to live, work and play in Brooklyn has led to a heightened need for greater amenities and services, particularly in the retail sector. Everyone from investors, owners, and retail tenants have flocked to capitalize on the sudden surge in growth and opportunities.
So far, much of this activity has taken place north of Prospect Park, while southern Brooklyn hasn’t benefited as much from the borough’s overall retail growth. The neighborhood of Bedford-Stuyvesant, for instance, saw tremendous action in 2014, with 33 new retail locations, according to a CPEX study of retail leases signed. Park Slope, Williamsburg, and Crown Heights represent the top three neighborhoods in terms of greatest retail density, with 35 retail corridors combined. It will take time for the retail boom to trickle down into southern Brooklyn, but the neighborhoods south of Prospect Park will inevitably see the same quantity of retail corridors as its northern neighbors.
In the meantime, retailers have sought out overlooked locations off the beaten path to gain a foothold in well-established areas. As a result, traditional “side street” locations that didn’t have much of a retail presence or value as recently as two or three years ago have suddenly transformed into notable retail destinations with high rental rates. North Fourth Street in Williamsburg, for example, wasn’t even on the retail map in 2013; today, thanks to its geography and uniquely large floor plate, it commands an average of $100 to $149 per square foot in retail rents.
This type of transformation is happening on the neighborhood scale as well throughout Brooklyn. Crown Heights and Bushwick have both emerged onto the retail scene, and places like Prospect Lefferts Gardens and Sunset Park are following suit.
Sunset Park in particular is on the rise — the most recent example of a former industrial area opening up to retail as spaces are converted for retail use. Facilitated by CPEX, the recent lease signing by Bed Bath & Beyond at Liberty View Industrial Plaza — a modern eight-story retail, industrial and technology complex totaling 1.2 million square feet — was Brooklyn’s largest retail lease of 2014 and represents a game-changer for the neighborhood.
Suburban-minded tenants like Bed Bath & Beyond are taking creative approaches that haven’t been attempted before in urban settings. For example, they are entertaining spaces outside the typical retail vanilla box, locations like Liberty View Industrial Plaza. Also, Bed Bath & Beyond Inc. is placing four of its subsidiaries (Bed Bath & Beyond, buybuy BABY, Harmon Face Value, and Cost Plus World Market) under one roof for the first time ever. As Industry City takes shape next door, the arrival of Bed Bath & Beyond will mark a shift in the Sunset Park retail scene as it brings more consumers and a new wave of retailers.
If Brooklyn were its own city again, it would be the fourth largest in the U.S. National and international retailers have taken note and started to migrate to the borough, with Apple, JC Penney, Neiman Marcus, Madewell, and others all announcing their first Brooklyn locations in 2014.
So what’s next for Brooklyn? Even though Brooklyn remains part of New York City, it is poised to emerge as its own distinct retail hub, on par with the likes of Chicago and Boston. With developers, businesses, hotels, and tourists all converging on the borough and no signs of slowing down, the year to come will be equally bountiful for Brooklyn as it continues its ascent as a high-profile retail destination.
— By Ryan Condren, Managing Director of Retail Leasing, CPEX Real Estate. This article first appeared in the May 2015 issue of Northeast Real Estate Business magazine.