Thursday, August 04, 2016

So, is office space a good bet? The market seems to shift (and could shift again)

From January 2016 presentation by Greenland
 Forest City Partners to Department of City Planning
So, what's the market for Atlantic Yards/Pacific Park office space?

Despite the anticipated shortfall mentioned in a Greenland Forest City Partners presentation to the Department of City Planning in January, in the short run, the Brooklyn market seems to have cooled.

Maybe that means that the Atlantic Yards/Pacific Park space planned would hit the market when the need recurs.

But it also may mean the developers seek to retain flexibility, so instead of building an "iconic" office tower at Site 5 they just might build lots of housing.

The slowdown

Bloomberg News (via Crain's) tells us Brooklyn office developers chasing tech tenants face a slowdown:
Leasing in Manhattan by tech, advertising, media and information tenants—known to real estate brokers by the acronym TAMI—fell in the second quarter to the lowest level in more than three years, according to Cushman & Wakefield. Such firms added just 1.21 million square feet in the borough. That's a 43% drop from the space leased in the first quarter.
Demand is cooling as development across the East River surges, with 9.6 million square feet of Brooklyn offices slated for completion by the end of 2020. Developers and investors behind projects including the former Domino Sugar plant, the Watchtower Building and the retired Schlitz Brewery are aiming to draw TAMI tenants, and Brooklyn's emergence as one of the U.S.'s top tech centers is threatened unless there's a reversal of the slowdown.
Some delays may be coming:
"Demand will still come from TAMI" as well as other sectors "as Brooklyn remains a hot market," [Richard] Persichetti [Cushman's research director for the Northeast] said in an email. Still, at least some Brooklyn office developments are likely to be pushed back to the next real estate cycle, he said. "There is no way to tell which projects will be built."
That's vague, but that also may be cause for concern. Only a specific big time tenant would pay the premium to be at Site 5, especially when other major options--the Domino Sugar site, the former Watchtower sites--remain available, albeit not nearly as close to transportation hubs.

The long-term factor

Tucker Reed, the outgoing president of the Downtown Brooklyn Partnership (and thus champion of
developers and landlords), told Bloomberg, ,"I totally disagree with the premise that the innovation economy is slowing in Brooklyn."

Well, maybe, maybe not, but the amount of space being leased did go down.

Like Forest City Ratner CEO MaryAnne Gilmartin, he thinks that new Brooklyn residents will "soon begin to demand increased office options."

That's plausible, but that also doesn't necessarily move the needle on a trophy office building at Site 5 or a huge additional office tower at B4, on the northeast flank of the arena. At least one of them needs an anchor tenant. So stay tuned.

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