Despite the difficulties presented over the past year by the pandemic, there have been pockets of the country where commercial real estate has continued to boom. One of those is Brooklyn. Across the board, Brooklyn has seen continued growth in office, industrial and even retail space. Some speculate that the borough benefits from many tenants electing to leave Manhattan in search of better affordability and square footage.
Amidst the competition for securing a piece of Brooklyn is Tri State Commercial Realty, one of the city’s fast-growing up and coming brokerage firms. Their focus on commercial leasing and sales in Brooklyn has put them on the radar of a slew of clientele looking to expand the office or storefront space in TSC’s home market. Their CEO, Shlomi Bagdadi, who was CoStar’s top ranked Power Broker for 2016-19, provided us with insight into just how hot the Brooklyn commercial market is getting and which sectors and industries are clamoring for space.
Are you seeing increased demand for commercial space in Brooklyn?
Shlomi Bagdadi: We're definitely seeing a great increase in demand in the commercial real estate (CRE) market since the beginning 2021. For example, last year's Q1 (2020), which was when the pandemic began, Tri State Commercial (TSC) closed about 32 transactions, which was a great start to any year, let alone a pandemic. But in Q1 of 2021, TSC closed 50 transactions, which is more than a 50% increase! That's mind boggling. Within the past two weeks, there were ten more transactions recorded by our team.
The Brooklyn market’s leasing activity overall increased approximately 32% YOY for the first quarter of this year. The industrial sector in particular saw increases of over 45%. Retail saw an increase by 25% in leasing, meanwhile office market activity increased by 33%, according to CoStar.
The investment sales market is a completely different story. Overall sales in the Brooklyn market actually fell by about 33% YOY for the first quarter.
Has the pandemic and remote work changed how companies are utilizing office space?
SB: In my opinion we can only make speculations at the moment, since only about 50% of office users are starting to go back to the workplace currently. Therefore, it's early to draw conclusions. But we are all anticipating that there will be an increase in the amount of people working remotely, and there is definitely going to be change to how companies are going to utilize their office space to incorporate social distancing, and possibly a hybrid work model where you rotate working from the office and from home.
For these reasons, do you see companies that were previously Manhattan-based now shifting to Brooklyn?
SB: Companies may consider moving to Brooklyn, not necessarily for only these reasons, but when you factor in other economics and incentives, Brooklyn can be a very attractive alternative to Manhattan's office market. The borough only has approximately 37M SF of total office space with a 19% vacancy rate. That’s almost 80% below Manhattan’s market’s 470M SF of office space with an approximately 17% vacancy rate.
So if Manhattan companies were to consider the Brooklyn market, they ought to do it as soon as possible. It won't take long before certain tax incentives expire and approximately 7M SF fill up, especially when the average price of square footage in Brooklyn stands around $52/SF while it's about $74/SF in Manhattan.
How has Tri State Commercial been uniquely positioned to take advantage of the growth of Brooklyn over the past several years?
SB: TSC has spent the past five years utilizing and implementing the latest technology in the CRE deal process. We have fine-tuned every step of the transaction process using technology in order to improve the human efficiency of our agents. Over that period of time we watched Brooklyn continue to emerge as an independent market with its own workforce, shopping experiences, and residential and commercial developments.
The Brooklyn market is still far from its peak and because of the time and resources we have invested into industry-leading technology the last few years, we’re extremely well-positioned to serve the surge in demand that is expected in the CRE market in the post-pandemic period.
What are the key factors many of your clients are looking for in office space right now?
SB: Aesthetics remain more important than ever as companies seek space that aligns with their brand and the unique needs of their culture and workforce. That includes a facility’s amenities and accommodations and quality of life factors for employees such as transportation access.
Building management qualifications are also being considered more closely in the post-pandemic era. Companies are looking at how the management of a facility responded to the pandemic and their overall preparedness for unforeseen events.
What industries are you seeing moving into Brooklyn most often?
SB: As of now, healthcare companies are leading the way in Brooklyn. We are also seeing growth among supermarkets and other food and beverage related companies. Among the types of space, the highest demand we’re currently seeing is for industrial space. Interestingly, that’s followed by office space and then retail space.