Square Feet: Downtown Brooklyn’s Dearth of Office Space Beckons Tishman Speyer

Square Feet: Downtown Brooklyn’s Dearth of Office Space Beckons Tishman Speyer

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Other projects include One Willoughby Square, a 500,000-square-foot tower being built by a partnership of Forest City Ratner Companies and JEMB Realty. Another is 625 Fulton Street, a 36-story tower being developed by the Rabsky Group.

In addition, the Pioneer, a 260,000-square-foot office building at 41 Flatbush Avenue built by Quinlan Development Group and Building and Land Technology, is nearing completion.

The surge in speculative office buildings follows a period of residential development. Since 2004, when the neighborhood was rezoned to allow for more office and residential development, more than 9,400 apartment units have been built in Downtown Brooklyn. There are nearly 5,200 more under construction and roughly 6,000 in the pipeline, according to the Downtown Brooklyn Partnership, a local development corporation. Six new hotels have been built in the area since the rezoning, with two more under construction and one in the pipeline.

Tishman Speyer is constructing a 620,000-square-foot office tower on top of the Macy’s department store in Downtown Brooklyn.

Credit
Christopher Lee for The New York Times

Developers are betting that the many new residents in the area, as well as the neighborhood’s proximity to several subway lines and the Long Island Railroad, will generate sufficient demand for the new office space.

“I see three factors at play,” said Paul Travis, a developer and the managing partner at Washington Square Partners. “We are offering quality office space at a lower price point than Manhattan; there are tax incentives available for companies that come to Brooklyn; and, last but not least, the fact is that Brooklyn is where the talent pool is located.”

Mr. Travis teamed with Christopher Conlon of Acadia Realty Trust to develop City Point, a 1.8 million-square-foot mixed-use project at 445 Albee Square West, with tenants that include the Alamo Drafthouse Cinema and a soon-to-open Trader Joe’s. The project is currently marketing 20,000 square feet of office space with an asking rent of around $55 a square foot. By comparison, asking rents in Lower Manhattan are $62 a square foot, while in Midtown they are nearly $84 a square foot, according to fourth-quarter figures from the brokerage firm Cushman & Wakefield.

Downtown Brooklyn has a total of 17 million square feet of office space, and the new office construction is expected to add two million to three million square feet, according to the Downtown Brooklyn Partnership. The vacancy rate in the area is very tight, at just 3.1 percent.

The Pioneer, a 260,000-square-foot office building at 41 Flatbush Avenue, built by Quinlan Development Group and Building and Land Technology, is nearing completion.

Credit
Christopher Lee for The New York Times

“We get calls from companies wanting to move to Downtown Brooklyn, but with the lowest commercial vacancy rate in the city, there is nothing available,” said Regina Myer, the president of the Downtown Brooklyn Partnership. “We are losing these jobs to other neighborhoods and even cities outside of New York, so having this new Class A office space is critical.”

Real estate professionals are closely eyeing the Pioneer Building at 41 Flatbush, the first of the new office towers to be completed, with its temporary certificate of occupancy expected later this month.

“The challenge is that there are no rental comps for the neighborhood yet, so everyone is closely watching this first lease to set the base rent,” said Andrew Sasson, a senior director at Eastern Consolidated, referring to the lack of deals for offices larger than 10,000 square feet in the $50 per square foot range.

The building has yet to secure an anchor tenant or any signed leases. It does have a lease out to a tech company for a midrise floor, according to Joseph Cirone, a senior director at Cushman & Wakefield, which is marketing the office space. Even though it does not yet have a tenant, “There has been a lot of activity,” Mr. Cirone said, noting that the building’s asking rents were averaging in the mid-50s range.

Alamo Drafthouse Cinema and a soon-to-open Trader Joe’s will be tenants at City Point, a 1.8 million-square-foot mixed-use project at 445 Albee Square West.

Credit
Christopher Lee for The New York Times

A few blocks from the Pioneer, Tishman Speyer has already begun work on its new property. Interior demolition work and structural reinforcement are underway, with the external construction scheduled to begin early next year. Macy’s currently occupies two buildings: an eight-story structure built in 1930 and an adjacent four-story cast-iron structure that was built in the early 1870s by Andrew Wheeler, for whom the new office tower will be named.

The Wheeler will integrate the top four stories of the building from 1930 with new construction. The new construction will rise above the adjacent building, creating four stories with floor plates of 90,000 square feet each and six stories ranging in size from 30,000 to 60,000 square feet.

The project’s architects, Joey Shimoda of Los Angeles and Perkins Eastman, have designed terraces on eight floors that will total about one acre of outdoor space, as well as a full floor of amenities. There will be 130 bike stations in the basement, with lockers and showers, for those who bike to work.

“This building will combine the best of vintage real estate and contemporary design, giving tenants the feeling of an old warehouse but without losing all the amenities of new construction,” said Mr. Speyer, who took over as sole chief executive of the development firm in 2015.

Tishman Speyer’s will integrate the top four stories of the existing Macy’s structure at 422 Fulton Street with new construction, to create a 10-story building to be ready for occupancy in mid-2019.

Credit
Christopher Lee for The New York Times

Because of the cost and complexity of building in New York City, speculative office construction is relatively rare, and has a mixed record of success. The office tower 11 Times Square, for example, opened in 2011 with just one tenant and more than half of the building vacant; 510 Madison Avenue, which opened in 2009, also spent several years struggling to fill its offices.

These buildings were constructed during a recession, however, and developers in Downtown Brooklyn are hopeful their speculative buildings will buck the trend.

As part of the deal, Macy’s will continue to own and occupy the first four stories of the building, and the department store will operate throughout construction.

Tishman paid Macy’s $170 million in cash for the space and will pay an additional $100 million over three years, which Macy’s is using toward renovation of its store. This is the second deal that Tishman Speyer has struck with Macy’s. In a separate transaction, Bloomingdale’s, which Macy’s owns, is leasing 550,000 square feet at a Tishman Speyer building under construction in Long Island City, Queens, to serve as corporate offices.

With the addition of the Wheeler, Tishman Speyer has nearly eight million square feet under construction or in the pipeline in New York City, the largest amount of new development in the city in the company’s history.

“We are participating in the diversification of the city’s office core beyond Midtown,” Mr. Speyer said. “Real estate has become a recruitment tool — it is no longer just four walls and a floor. The expectations on landlords are much greater.”

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