One borough’s loss in another’s gain. Despite the general deterioration in the New York City economy thanks to plunging financial services employment, the downtown Brooklyn real estate market is reportedly getting tighter as cost-conscious companies go shopping for cheaper digs.
From the New York Times:
Among office tenants, bargain hunting is back in style. After years of paying skyrocketing rents in Manhattan, some companies have decided to cross the East River….
Although vacancy rates are rising in Manhattan, mostly because of layoffs in the financial industry, office space is actually becoming more scarce in Downtown Brooklyn. The vacancy rate there in modern, well-equipped buildings — what brokers refer to as Class A office space — fell to 7.9 percent in the third quarter, from 9.4 percent in the first quarter, according to Cushman & Wakefield, the commercial real estate concern.
At least nine Manhattan companies, including UniWorld, have signed new leases for Class A space in Downtown Brooklyn this year. The leases — for properties ranging in size from 4,000 square feet to 120,000 square feet — total nearly 300,000 square feet.
Although that would not make much of a dent in Midtown Manhattan, the Downtown Brooklyn market is relatively small. It has only about eight million square feet of Class A space, compared to nearly 180 million square feet in Midtown.
Most of the Class A space is in MetroTech, a large office complex in Downtown Brooklyn that was built by Forest City Ratner from the early 1990s through 2005. The developer owns six office buildings, with 3.7 million square feet, in MetroTech’s 5.2 million square feet.
JPMorgan Chase owns the other two office buildings in MetroTech. Forest City Ratner also owns three more Class A buildings near MetroTech, including a 19-story 700,000-square-foot tower called 1 Pierrepont Plaza….
The average asking annual rent for all Class A office space in Downtown Brooklyn was $30.52 a square foot in the third quarter, down from the historic high of $31.44 in the first quarter, according to Cushman & Wakefield. That is only a third of the average asking rent in Midtown Manhattan, which was $92.59 a square foot in the third quarter.
In some of the most desirable Manhattan towers, rents can be stunningly high. For example, asking rents at the General Motors Building, on Fifth Avenue between 58th and 59th Streets, are about $150 a square foot. Weil Gotshal & Manges, a global corporate law firm that is known for its bankruptcy practice, was the building’s first tenant 40 years ago.
Weil recently decided to give up 25,000 square feet of its space there and signed a lease through 2020 for the entire ninth floor — around 35,000 square feet — of 15 MetroTech, a 19-story building that opened in 2003. It plans to move about 100 employees from its accounting, human resources and technology departments there….
Cost savings can go well beyond the rent. The city provides tax incentives to lure businesses from Manhattan to the other boroughs instead of moving to New Jersey or Westchester County. The Relocation and Employment Assistance Program gives companies a $3,000 tax credit for each employee against city business taxes every year in the first 12 years after the move. That would cut costs at a rate equivalent to $16 a square foot, assuming average density.
The story amusingly neglects to mention that Bear Stearns had some of its back office and compliance functions in Brooklyn.