The demand for office space in the Brooklyn Tech Triangle is at an all-time high. Almost all of the available office and manufacturing space is occupied resulting in a staggeringly low vacancy rate throughout the Tech Triangle. Whatever inventory becomes available is quickly absorbed by tenants looking to cluster with other innovation firms within the Tech Triangle. This trend has become even more apparent in recent years. The vacancy rate has shrunk to close to 3% in just three years. With this rate of growth likely to continue, more space is desperately needed to continue to attract innovation firms to the area.
In spite of anecdotal feedback in 2012 that argued innovation firms would not move to Downtown Brooklyn; during the ensuing period, the vacancy rate in MetroTech Center plummeted from approximately 10% to 2%. This rate of absorption is having a positive impact on the commercial development pipeline.
As highlighted in the 2013 Strategic Plan, a survey of tech firms projected the need for office space in 2015 would total 3.1 million square feet. The good news is there are some glimmers of hope on the development horizon, with a handful of new projects across the Tech Triangle set to bring online the next wave of commercial space.
In March 2015, Quinlan Development Group LLC and Building & Land Technology closed a deal for the purchase of 41 Flatbush Avenue, the old Extra Space Storage building at the corner of Flatbush and Livingston Streets. This joint venture will convert the 230,000-square-foot building into “Class A” office space for creative economy firms—the first project of substantial scale within the footprint of the 2004 Downtown Brooklyn rezoning district to be redeveloped for office use.
A long-awaited large-scale commercial development was made public in August 2015, when Macy’s Inc. announced that Tishman Speyer will acquire their Brooklyn real estate portfolio. As part of the deal, Tishman Speyer will renovate the Fulton Street Macy’s store and convert 360,000 square feet on the underutilized upper floors into much-needed office space in the heart of Downtown Brooklyn’s retail corridor.
In summer 2015, the Brooklyn Navy Yard Development Corporation (BNYDC) announced a partnership with Boston Properties and Rudin Development to develop a 675,000-square-foot ground-up development with WeWork as the anchor tenant. The transformative $350 million project will create 4,000 living wage jobs; fund 60 additional internship opportunities in top tech, media, and design firms at the Yard; and attract hundreds of new entrepreneurs and small businesses, any one of which could grow to become a major Brooklyn employer. True to its industrial base, the below projects will attract companies at the intersection of design, technology, and manufacturing:
In the fall of 2014, Mayor de Blasio announced funding for a $140 million gut renovation of this 16-story, 1 million-square-foot building to create 3,000 jobs. Building 77 is BNYDC’s largest project to date and will feature state-of-the-art building system upgrades. When completed, Building 77 will increase employment at the Navy Yard by more than 40 percent.
BNYDC recently completed renovation of the 250,000-square-foot Green Manufacturing Center. The $66 million project will create more than 800 jobs and is funded through BNYDC equity, New Market Tax Credits, Historic Tax Credits, and direct public subsidies from the City and State. The building is over two-thirds leased with three anchor tenants: Crye Precision, a design and tech-driven body armor manufacturer; New Lab, a collaborative space with design firms and design schools sharing high-tech manufacturing equipment for prototyping and research; and Brooklyn Roasting Company, which will consolidate their operations, coffee roasting, and distribution into a 17,000-square-foot facility.
DUMBO Heights is a 960,000-square-foot manufacturing and industrial office complex spread across five buildings that is being converted into class “A” creative office and retail space by Kushner Companies in partnership with RFR and LIVWRK. This project offers 80,000 square feet of retail space to Brooklyn-focused food and retail, as well as loft-style office space including high ceilings and sky bridges connecting the five buildings. Within the first year, record-breaking leases have been signed with Etsy and WeWork.
This former warehouse site is being transformed by Midtown Equities and the HK Organization into a 300,000-square-foot vibrant creative office and retail hub. West Elm will serve as an anchor tenant taking 150,000 square feet for their corporate headquarters, along with another 15,000 square feet for a retail store and market. Other tenants include Shinola and two planned restaurant concepts from Vinegar Hill House and Soho House.
These projects will add much needed commercial space to the local marketplace, serve an important role in the future success of the Tech Triangle, and support the economy of the borough and New York City as a whole. In 2012, the Brooklyn Tech Triangle supported close to 12,000 innovation jobs which occupied 2.1 million square feet and had a total economic impact of $3.5 billion. With limited space to grow, the number of innovation jobs today has increased by 45% to 17,000 jobs which now occupy 3.1 million square feet of space—making the Brooklyn Tech Triangle’s overall contribution to the economy $5.3 billion. The new space coming online will help to support the growing demand from the innovation economy and help to further increase the Tech Triangle’s economic impact on the City.
However, if the innovation sector continues to grow at the rate it has over the past few years, there is looming concern ahead. Between 2009 and 2015, innovation employment grew 29.4% in Brooklyn; in the same period, the Tech Triangle experienced an 87% increase in innovation employment growth. Given these growth trends, much of the planned commercial space in the Brooklyn Tech Triangle will be absorbed by 2020. More specifically, according to projections from our 2015 Economic Impact Study, the total demand for space in the Tech Triangle will reach close to 10 million square feet by 2025. However, the current pipeline will only increase the total Tech Triangle inventory to 6.7 million square feet by 2020, leaving a 3.1 million-square-foot shortfall. If the private sector or City is unable to address this gap, the Tech Triangle could lose an additional 18,000 jobs and $4.8 billion in economic impact.
This conservative growth projection is based off of historical growth trends and does not take into account the possibility of a larger anchor tenant coming into the market and absorbing a large percentage of any of the upcoming space, a likely scenario given the increasing desirability of the Brooklyn commercial office market. Moreover, innovation and tech uses take up only 14.2% of current stock. Limited turnover of existing stock, continued competition for space from other light industrial uses in the Navy Yard and government, education, and nonprofit sectors in Downtown Brooklyn will continue to limit innovation sector growth in whatever inventory becomes available.
Therefore, given the ongoing competition for available space, the expected growth of the innovation sector, and the lack of product coming online, providing enough space for innovation firms that want to grow and locate within the Tech Triangle is one of the greatest challenges we face today.