Demand for Brooklyn office still catching up to supply

Brooklyn office landlords are still struggling to fill the glut of new buildings built over the last two decades.

Leasing activity was down almost 50 percent in December from the previous quarter, amounting to just 140,000 square feet, according to a new Colliers report. The borough’s full-year leasing volume totaled 930,000 square feet, a 31 percent drop year-over-year.

“The lower leasing volume is a reflection of the fact that it’s a smaller pool of tenants that the Brooklyn office market has been able to pull from, compared to the Manhattan market,” said Colliers’ Franklin Wallach, one of the report’s authors.

The ongoing flight-to-quality trend in Manhattan’s office sector has landed in Brooklyn. But the borough has an oversupply of new Class A construction that started even before the pandemic. About 18 percent of Brooklyn’s 47 million square feet of office space was built in the past two decades. Those buildings have an availability rate of 37.5 percent, compared to an overall availability of 21 percent, according to Colliers.

The average asking rent for post-2000 buildings has dropped for three consecutive quarters, to $63 per square foot. Brooklyn’s overall average rent is about $50 per square foot.

“There was sort of the belief that if you build all this new product, every tenant from even the Manhattan market will look to that market,” Wallach said. “It’s had limited success in bringing tenants over or expanding them in the area.”

The market is still dominated by small and mid-sized tenants from the healthcare, education, nonprofit and government sectors. The nonprofit Rising Ground inked the largest lease deal of the last quarter for 27,000 square feet at 111 Livingston Street.

There were a handful of other large lease deals. Staging company Staged to Sell Home took 24,000 square feet in Industry City and Acme Smoke Fish signed an 18,000-square-foot lease in Williamsburg. But most leases are for less than 1,000 square feet,

“All I see is very small spaces being leased,” said longtime Brooklyn broker Christopher Havens of TerraCRG. “That market’s still alive – the one-, two- or three-person market. There are some splashy deals, but Manhattan is so cheap, why would you put 25 people in an office in Brooklyn when you can be in Manhattan centrally located near public transportation?”