Downtown Brooklyn’s rezoning was originally promoted as necessary to spur office construction and keep companies from moving to New Jersey’s waterfront. Four years later, Brooklyn’s central business district has experienced a net loss in office space as developers have gravitated instead to more lucrative residential and hotel projects.
The residential conversions at One Hanson Place and the Verizon building in MetroTech (now Belltel Lofts) accounted for a loss of 908,000 square feet of Class B office space. And an untold number of several smaller office buildings have been torn down or could be converted to residential, such as the historic Conway building on Fulton Street.
Meanwhile, several projects that were part of an expected addition of 1.6 million square feet of office space have gone nowhere. That figure includes at least 290,000 square feet at City Point, a planned mixed-use tower at the former Albee Square Mall site, which has been vying with several other planned projects to be Brooklyn’s tallest building. The Downtown Brooklyn Partnership said that three office buildings totaling 217,000 square feet are already under construction in the area.
Downtown Brooklyn Partnership President Joe Chan, who worked on the 2004 rezoning under the Bloomberg administration, acknowledged that in the years following its enactment, residential demand was stronger than office demand. Along with drawing commercial tenants, the other goal of the rezoning “was the growth of Downtown Brooklyn into a 24/7 community” and “to spur growth where growth made sense.”
The new rules were flexible enough to allow development under changing market conditions, Chan said, adding that the typical build-out from rezoning spans multiple market cycles.
Following last month’s stunning collapse of Bear Stearns and predictions of vacancies in Manhattan, Atlantic Yards developer Bruce Ratner revealed that he had not yet secured an anchor tenant for the project’s signature tower, Miss Brooklyn, and would delay its construction indefinitely. Ratner said the Nets basketball arena would be built on schedule, while the rest of the mega-project’s future remains unclear.
City Point co-developer Paul Travis remains upbeat about the commercial market and said he’s considering eliminating some apartments to accommodate 400,000 square feet of office space.
“Historically, Brooklyn’s office market has tended to do well in times when tenants are much more concerned about cost, which is usually when the economy is going down, not when it’s going up,” said Travis, a Washington Square Partners managing partner. “You saw a tremendous amount of growth in the Brooklyn market in the early ’90s, which was not exactly a stellar time for the economy.”
Most people interviewed said occupancy at MetroTech, where nearly all of the borough’s Class A space is located (including 290,000 square feet leased by Bear Stearns), is dependent on low vacancies in Manhattan. But industries showing interest in Brooklyn, such as insurance, non-profit, media, advertising and law firms, could help make the borough less dependent on the success of Manhattan’s market and the financial sector, Chan said.
Before Ratner tries to build more than 1.6 million square feet of office space at Atlantic Yards, he first must fill the space at MetroTech. El Diario, the Ms. Foundation for Women, and HeartShare Human Services of New York have all recently signed leases in MetroTech, leaving a remaining 644,000 square feet available. The Partnership expects vacancy to drop another 170,000 square feet once pending leases and subleases are signed.
Paula Ingram of Ingram & Hebron Realty said MetroTech rents are closer to Class B rates than Class A. She handled leasing at 177 Livingston Street by the Treeline Companies, and said 95 percent of the space at 177 Livingston Street is already leased — though the building is still under construction — mainly because rents were between $29 and $32 per square foot despite Class A amenities.
Ingram, like many brokers, said she’s concerned the borough will run out of Class B and C space, which is at its lowest vacancy rate in six years. “It’s a problem we’ve been talking about for a long time,” she said.
Class B and C space, which caters mainly to small and mid-size firms, isn’t generally profitable enough for new commercial developments; it often comes from conversions and renovations. “There’s a real shortage of those spaces at any time,” said Chris Havens, chief executive of CRES Corporate Real Estate Services.
Although Verizon never put its building on the market after the company vacated it, Havens said he believes the building, which has struggled to sell its condos, would do well as Class B space. Displaced commercial tenants from One Hanson and various teardowns have all increased demand beyond supply, Havens said.
Travis, the City Point co-developer, worked for Forest City Ratner during MetroTech’s early years, when Downtown Brooklyn was desolate after dark. He said the city nearly lost Chase Bank (now JPMorgan Chase) to New Jersey before finally offering the company “a very significant amount of money … way beyond anything anyone would consider today,” to relocate its operations center to MetroTech. That was before new residents, retailers and restaurants made Downtown Brooklyn more desirable, he said.
“You would not give that level of incentive today because you wouldn’t need to,” he said.