Brooklyn's Progress
June/July 2009

BY CHRIS HAVENS

Damaged by the economy like other real estate markets, Brooklyn commercial real estate values and activity have fallen substantially. For example, commercial building sales have fallen back to the level of the 2002 market.

Still, the spring has shown signs of improvement, with office leasing activity up. The downtown Brooklyn office market appears to be stabilizing, after an approximately 30% drop in rental rates. Tenants, reflecting the current mood, are taking the longest time in years to make decisions. Medical and legal tenants are active again, though non-profits, hit by large government cutbacks, are hurting. Neighboring Dumbo, the leading creative office market in Brooklyn, shows much increased availability as business services tenants suffer in the weak economy.

Nearly one million square feet of modern Class A space is available. While a few large tenants are negotiating for portions of this space, it will take some time before all this footage is absorbed. With predictions of a 20% vacancy rate in downtown Manhattan in 2010, our market will continue to reflect that challenging circumstance.

Retail is a tale of two cities – large nationals are out of the market yet small tenants continue to search for affordable space. After years of big store development, major deals are on hold due to tenant pullbacks or lack of financing. At the same time, numerous restaurant tenants continue to try their luck, in defiance of the current mood. Retail rents have dropped considerably.

Brooklyn is seeing a large expansion of alternative office and work spaces, following the Dumbo area success. This is a crucial trend – small businesses create nearly all new jobs – and landlords have responded to this demand around the borough. Fort Greene, Sunset Park, Prospect Heights and Park Slope have all seen older commercial buildings divided up for smaller artist, office and craft industrial tenants. Small creative tenants are still in the market, searching for reasonably priced space.

Chris Havens co-chairs the Brooklyn Chamber of Commerce’s Real Estate and Development committee and is the CEO of Creative Real Estate Group. For more information, go to http://www.chrishavens.com/.