Commercial Observer: much unleased office space in Brooklyn, with more product coming online. Would there be any market for offices at (well-located) Site 5?

Brooklyn’s Office Market Post-COVID Sows Green Shoots, David M. Levitt wrote for the 1/31/23 Commercial Observer, with the acknowledgement that the pre-pandemic challenges remain: "lots of available space and uneven demand."

The article starts with the Bedford Stuyvesant Restoration Corporation's big plans for "840,000 square feet of potential mixed-use property," a potential $700 million project that has a $50 million city commitment. 

But that's hardly a benchmark or bellwether, given the likely significant government and nonprofit support for the venerable nonprofit organization.

Meanwhile, the post-pandemic landscape shows bargains in Manhattan, given downsizing tenants, which diminishes Brooklyn's potential cost advantage.

Lots of inventory

One "nagging reality" is this:

“With a 21.1 percent availability rate and additional inventory scheduled for delivery over the next several quarters, the Brooklyn office market is challenged with an abundance of supply in nearly every submarket while the demand continues to be driven by a few select industries: education, government, nonprofit and health care,” said Franklin Wallach, executive managing director of research and business development at Colliers, in an email. “The creative industries have continued to play a role in Brooklyn’s demand. But this has mostly been Brooklyn-based with limited cases of Manhattan tenants relocating or expanding into Brooklyn.”

Wallach told the CO that 3.66 million square feet of office space should open in Brooklyn in the next three years, with virtually none of it pre-leased, while more than half of the 5.85 million square feet developed in the last four years remains available.

The major properties include the recently completed 1 Willoughby Square in Downtown Brooklyn, which is about half leased and the Refinery, the one landmarked building that's part of the Domino Sugar project in Williamsburg, which is being renovated into a new, potentially bespoke office building.

But, hey, Bushwick has landed some crypto companies, and Industry City is still luring start-ups.

What about Site 5?

The question, then, is whether a building in Atlantic Yards/Pacific Park, notably the long-gestating two-tower project at Site 5, could house office space, as proposed in 2016. The answer seems to be: unlikely (though you never know, since it's closer to transit than some rival sites).

More likely, given current trends, might be apartments with space to work from home.

Keep in mind that, as I reported in May 2021, the developers of the two-tower 80 Flatbush project, since renamed the Alloy Block, decided that, rather than build office space in the first tower, 100 Flatbush, they'd instead build mostly market-rate housing.

Downward trends

The Financial Times reported 2/2/23 that Scott Rechler, chief executive of RXR, is giving up some of the lesser-performing office space:

“With some of those, I don’t think there’s anything we can do with them,” Rechler said. The only alternative, he explained, was to “give the keys back to the bank” — developer-speak for halting debt payments and relinquishing control of the asset while trying to work out a solution with the lender.

The Financial Times noted that the trends are downward, first because of rising interest rates and second because of general cutbacks among potential tenants, notably the previously growing techy companies.

“When companies are laying off people, they don’t usually take more space,” Rechler told the FT.: “The amount of development projects that we’re hearing about around the country that are stopping is mind-blowing.”

To investors, the Commercial Observer reported 2/3/23, Rechler was more cautious, clarifying that two of the firm''s 91 buildings were “meaningfully challenged.”

One might be converted, with lenders' help, into a mixed-use property including housing. The CO suggested it was 47 Hall Street, near the Brooklyn Navy Yard. The other, 61 Broadway in Lower Manhattan, would also need investment to convert to residential.

The worst-case scenaro, Rechler said, would be to give the keys back.