Do you remember a time when a company could lease Class A office space in New York City for an effective rent of less than $15 per square? Well, that time is now — for companies willing to set up shop in the outer boroughs.
In perhaps the most difficult economic times since the Great Depression, more and more Manhattan-based companies are focusing on reducing office rental expenses by relocating to Brooklyn, Queens and the Bronx. It is in the outer boroughs that a combination of lower rents and increasing incentives translate into a cheaper bottom line.
In one case, global law firm Weil Gotshal & Manges recently announced that it is relocating part of its business from the GM Building to 35,000 square feet, or the entire ninth floor, at 15 Metrotech Center in Downtown Brooklyn. The rent, according to Glenn Markman, an executive director at Cushman & Wakefield, is about $30 per square foot — and that’s just before figuring in other factors.
“Through the [Relocation and Employment Assistance Program] and other incentive programs, companies can further reduce their effective rental rates by an additional $15 to $20 per square foot,” Markman said. “If you add the other concessions and incentives by the landlord, which include cash contributions and free rent, the net rent might be as low as $10 per square foot.”
Under the REAP program, for-profit companies (non-profits and government agencies do not qualify) get a $3,000 tax credit for each employee, against city business taxes, every year for the first 12 years after the move.
“REAP benefits are one of the most valuable tools instituted by the city to retain business in New York. If a tenant chooses to move to certain eligible enterprise zones in the outer boroughs, as opposed to relocating to New Jersey or Long Island, the tenant may be eligible for considerable benefits,” said Timothy King, a principal at CPEX Real Estate.
In the Bronx, many companies are visiting the recently-renovated 400,000-square-foot American Bank Note Building at the corner of Tiffany Street and Lafayette Avenue, which was acquired by Taconic Investment Partners earlier this year.
While rents in the outer boroughs may have gone up over the last couple of years, Douglas Winshall, the executive vice president at Taconic, said that his company can afford to offer rents at American Bank Note Building at 50 percent less than at a comparable building in Manhattan, because rents were already relatively cheaper in the area and there are more incentives available.
In Queens, many high-profile companies have discovered significant savings in relocating to Long Island City, only a five-minute subway ride to Midtown. Companies including Citigroup, MetLife, HSBC, Barclays and Tourneau maintain offices in the region. Today, some landlords are offering new tenants office space where the effective rents are as low as $10 per square foot.
In these days of cost cutting, expect more and more companies to evaluate the alternatives and relocate to the outer boroughs.
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” on CUNY TV and “Building New York” on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is also an adjunct professor at NYU Real Estate Institute and a former columnist for the New York Sun.