The Real Deal New York

The next untapped market — Brooklyn’s upper floors

As market heats up, under-used spaces seem more attractive

August 17, 2015 09:07AM

The Fulton Mall in Downtown Brooklyn

The Fulton Mall in Downtown Brooklyn

In a market this hot, even less-flashy properties are starting to look good.

Brooklyn prices have climbed so high that previously marginal inventory, such as unused office space above retail locations, is increasingly seen as worth the cost and effort to renovate and market.

The bellwether for the shift was Tishman Speyer’s decision last week to spend $270 million — $170 million immediately, with another $100 million pledged to renovation — on the top five floors of Macy’s nine-story store at the Fulton Mall in Downtown Brooklyn. Tishman also bought air rights to the space above the building, as well as a garage across the street. The company plans to fill the upper floors with office space.

There are 250,000 square feet of vacant space on the upper floors of buildings at the Fulton Mall, according to the Wall Street Journal. Often these spaces attracted significantly lower prices than the retail spaces below, and so were not worth the expense of maintaining.

Now, with startups and high tech firms knocking at the door, the market for smaller, quirkier office spaces has picked up. The vacancy rate for offices in Downtown Brooklyn stands at only 3 percent, according to Downtown Brooklyn Partnership.

But the picture’s not entirely rosy. Many of the spaces are in disrepair, and would require extensive investments to refurbish. And, retail remains high, ranging from $250 to $350 per square foot. Creating new entrances and other upgrades could well cut in to the retail space’s value. [WSJ] Ariel Stulberg