Cold wave comes to Brooklyn office market

By Adam Pincus | February 24, 2009 02:39PM

The average asking rent in Brooklyn’s modern office buildings — those built after 1987 — dropped below $30 per square foot for the first time in at least four years, according to CB Richard Ellis data covering the second half of 2008.

The downward shift was not a surprise to the borough’s brokers, who said the leasing environment is dependent on Manhattan, which suffered steep declines in the second half of last year.

Throughout Brooklyn, average asking rents fell to $28.82 in modern office buildings from $30.38 in the first half of the year, and down from a high of $34.53 in the first half of 2006, the information from the commercial real estate services firm showed.

At the same time, the average asking rent for all classes of office buildings in the borough remained flat, at $29.02, off slightly from the first half of 2008, when it was $29.32.

“Everything is slower now. In Downtown Brooklyn prices are off 25 percent,” from the highs seen over the past year, said Chris Havens, CEO of Creative Real Estate Group, and a leasing director for SL Green’s 16 Court Street. “Stuff that should be $40 [per square foot] is $30, and what should be $35 is $28,” he said.

The vacancy rate for all building classes in the entire borough was 12 percent in the last quarter of 2008, a large increase from 9.3 percent in the fourth quarter of 2007, and the highest rate for the last three months of the year in at least five years, Grubb & Ellis data showed.

Despite the gloomy report, Havens said since the start of the New Year he has noticed a slight uptick in market activity.

The heart of the borough’s 18 million square foot office market is Downtown Brooklyn, which Grubb & Ellis estimates comprises about 77 percent of the total office market.

The bulk of the Brooklyn office market is owned by a few companies, such as Forest City Ratner Companies, SL Green and Two Trees Management. The tenant focus is government, legal and social service agencies as well as large non-profit organizations, brokers said.

John Reinertsen, a CBRE broker in Brooklyn and Queens, said the slim supply of office space keeps the asking rents relatively stable. But he has seen a continuation of the non-profits moving to Brooklyn.

“Their leases [in Manhattan] in the 1990s were more reasonable,” he said, but as the leases expire, the non-profits continue to transfer out of Manhattan. “The flow is still there. Those companies really can’t afford $60 [per square foot] but can get rents in the $20s and $30s [in Brooklyn].”

Bob Hebron, broker and principal with Brooklyn-based Ingram & Hebron Realty, said he had not closed a deal since the start of 2009, but was working on four leases between 500 square feet and 7,500 square feet now. His firm represents landlords in eight Class B buildings with about 1 million square feet total.

He had not seen a dramatic decline in prices, and said concessions were only for a month or two of free rent, in contrast to concessions of about a year that are being offered in Manhattan.

“We are giving a little concession, like a free month, but the rents have not dropped much, maybe a buck a foot,” he said.