Manhattan to Brooklyn for Office Deals? That’s Over.

For years, tenants have been looking for high-end offices on a budget and spotting deals in Brooklyn, driving up demand in a market in trendy but hard-to- reach parts of New York City. With Manhattan leasing slowly rebounding from the pandemic, however, those tenants are opening their wallets to the city’s traditional center of commerce.

So was the trendiest borough just a trend?

In the second quarter of 2024, office leasing in Brooklyn hit a new low with only 122,000 square feet of office space leased, a 48 percent plunge from the previous quarter and 50 percent below the five-year quarterly average, according to a report from CBRE. 

The largest leases in Brooklyn during that quarter tracked by the brokerage were for Adafruit Industries, which signed a 41,500-square-foot lease in Industry City, and for event and catering company Vesper, which signed a 23,000-square-foot lease at 25 Kent Avenue.

In comparison, Manhattan saw 6.13 million square feet of office leased in the second quarter, 19 percent above the five-year quarterly average of 5.15 million. Bloomberg signed the biggest lease at 946,415 square feet at 731 Lexington Avenue, according to CBRE.

Brooklyn’s office development pipeline is also flat, with only the 11-story, 237,000-square-foot  office building at 29 Jay Street in Dumbo under construction by Edward J. Minskoff Equities and scheduled for delivery this year, per CBRE (CBRE).

CBRE maintained that any perceived trend of a migration from Brooklyn may not be all it appears, however. From 2022 to year to date 2024, there were a total of 14 relocations from Brooklyn to Manhattan totaling 246,000 square feet, while there were 96 Manhattan relocations into Midtown from Midtown South and Downtown Manhattan over the same period.

RAL Development Services and JRE Partners have seen the trend play out at 124 East 14th Street, better known as Zero Irving, where they provide a campus similar to what would normally be found in a brand-new development in Brooklyn — but smack dab in the middle of the Union Square submarket.

“We believe in living in the boroughs — totally get it — but I still believe the center of business life in New York is still Manhattan,” Spencer Levine, president of RAL Development, told Commercial Observer. “The digital skills training facility [at Zero Irving], those ideas existed in the outer boroughs because they couldn’t afford to be in the center of the city. We changed that dynamic with Zero Irving by anchoring with the Civic Hall facility. Call us an early adopter of trying to get that kind of programming back into the heart of Manhattan.”

Civic Hall occupies 85,000 square feet across seven floors of Zero Irving, where it provides technology resources such as classroom space utilized by organizations like LaGuardia Community College. Civic Hall was one of the first tenants to sign in the building.

RAL says it was emulating a lifestyle office experience in its development of Zero Irving similar to what was percolating in Brooklyn’s Dumbo and the Williamsburg-Greenpoint waterfront, and even in Queens’ Long Island City. 

Levine saw transportation infrastructure as another integral part of what makes Manhattan a perennial center of office in New York City, considering that it’s nearly impossible to travel between the outer boroughs without going through Manhattan.

The major advantage for RAL in building Zero Irving was the appeal to tenants hiring those who fit the Brooklyn profile of creativity, and the L train served as a direct link as it’s the fastest route between North Brooklyn and 14th Street in Manhattan.

Brooklyn may have continued at its usual pace had infrastructure improvements like Mayor Bill de Blasio’s streetcar project between the boroughs ever left the station. It was essentially scrapped when de Blasio left office.

“Big infrastructure takes a long time in our country. … I’m sure there’s an inverse reaction now, like [the infrastructure] never came, so we need to retool this,” Levine said. “Infrastructure plays a big role in people’s decisions of where they’re going to live and work. We saw that at Zero Irving — Union Square is one of the major hubs of our regional system. You can get there easily from Jersey, Queens, Brooklyn, Long Island.”

Being near a major transit hub has been the hallmark of Manhattan’s flight-to-quality trend over the last few years. Premium offices developed around not only Union Square but also Grand Central Terminal, Times Square and the Penn District have drawn the briskest leasing activity and highest rents post-pandemic. Hudson Yards also has the 7 train, which extends east to Flushing, Queens.

“Despite the Manhattan market recovering a lot over the last 18 to 24 months, that recovery has really been led by Class A and trophy space,” said Adam Henick, a broker at Current Real Estate Advisors. “Now, the challenge is that location is perhaps one of the most important criteria when executives are determining where their office is going to be, because they really want to not only make offices more accessible, but encourage a return to office.”

As it turns out, nobody likes a crappy commute — and a seamless ride to work is possibly a better incentive for in-office attendance than a long and twisted road to a Class A building, Henick said.

“I think what you’re seeing is, if given the choice, a company would rather set up shop in a Class B building in Manhattan and have a really nice space in a totally fine building, versus having a great space in Brooklyn,” Henick said.

There’s a possibility that there is a cyclical nature to the trend as well, and the post-pandemic factors are all that’s new this time around.

“I think that when Manhattan’s very hot, people look for ways to save and they maybe move out of the city,” Jeff Buslik, executive managing director at owner Adams & Company, told CO. “They don’t necessarily want to go so far, because the talent pool is still in and around New York City and in those boroughs. But, now that the market is not hot, they come back, because this is where they really want to be if price is not a factor.”

Buslik recently arranged a deal for Wellcom Worldwide to relocate from Brooklyn to a 24,005-square-foot office at Adams & Company’s 16 Madison Square West. It has asking rents at $59 per square foot, well below the Midtown South average of $84.50 per square foot in June, according to a CBRE report.

The average office asking rent in the second quarter of 2024 in Brooklyn was $54.55 per square foot, according to CBRE.

As companies were priced out of Manhattan, there were a number of outer-borough conversions of industrial properties into Class A offices with retail components in the mold of Manhattan’s Chelsea Market. The Factory at 30-30 47th Avenue and the Falchi Building at 31-00 47th Avenue, both next door to each other in Long Island City, are two examples.

While the landlords made up for a difficult commute to these developments by offering shuttle services from the nearest subway station, it doesn’t seem to have been enough for owner Savanna. It started marketing the Falchi Building for warehouse use back in June.

Marketing material for the building advertised truck loading bays, as well as a food court and shuttle buses, indicating that the tech tenants weren’t leaving unless they wanted to.

Mark Hallum can be reached at mhallum@commercialobserver.com.