Office sharing companies could be the new darling of the real estate business.
Co-working tenants have been credited with driving down vacancy in Brooklyn in the latest report published by Colliers last week.
“During the second quarter (co-working tenants were) certainly a good portion of leasing activity in Brooklyn,” Franklin Wallach, senior director of Colliers’ research group told Real Estate Weekly. “We saw cases of it in numerous Brooklyn neighborhoods.”
During the quarter WeWork executed a 75,000 s/f expansion at 77 Sands Street in DUMBO Heights and announced plans to become an anchor tenant with a 675,000 s/f project in the Brooklyn Navy Yard.
Cowork│rs leased 42,000 s/f in the rebranding Gowanus at 92 Third Street. And Brooklyn Creative League expanded by 5,000 s/f at 540 President Street.
Despite the heavy amount of activity from those tenants — who take a chunk of space and parcel it out to other business — Wallach believes Brooklyn’s market would remain just as strong without co-working entities.
“Even before those tenants were making a presence in the Brooklyn market, you already saw limited availability,” he said, adding that entities like WeWork “certainly accelerated” the falling availability rates in the borough.
“It’s obviously a very important factor, just as it is in Manhattan’s market,” added senior managing director at Colliers, Richard Warshauer. “But these spaces are going to be leased one way or the other; it’s just a matter of timing. The life and death of the market is not co-dependent on the co-working entities.”
Joe Cirone, senior director at Cushman & Wakefield, agrees that, even without an influx of co-working tenants to harbor smaller businesses, Brooklyn would continue to enjoy a busy office leasing market.
“There is no shortage of small tenants,” said Cirone. “If you look at the Two Trees portfolio in DUMBO, it’s over a million square feet and I bet you over three-quarters of it is 3-500 s/f tenants.
“It’s nice to have a WeWork that is also paying very aggressive rents and also swallowing up big blocks of space,, but when big blocks of space do come available here, they are going pretty quickly.”
Colliers Q2 Office Sector report for Brooklyn noted that the availability rate dropped 3.5 percentage points, quarter over quarter, to 24.5 percent, with many of those deals at premium buildings at top rents.
MNS CEO Andrew Barrocas, CEO at residential brokerage firm MNS, believes much of the appeal to commercial office users is the employee pool, which has been drawn to the Brooklyn market.
“Brooklyn has one of the greatest talent pools of people in the US,” said Barrocas. “The office sector is growing because, not only do people want to live in Brooklyn, but they don’t want to leave, especially for work, dining or entertainment.”
Most are living in Brooklyn because of relatively affordable rents when compared with Manhattan — and the same holds true for office leasing price tags.
“I think the co-working companies and the co-working communities are fostering continued growth,” Sean Black, an executive director at Cushman & Wakefield, said.
Black, who has helped place both WeWork and Cowork│rs into nearly half-a-million square feet in Manhattan, also noted that office sharing breeds newer, bigger tenants for every market.
“There is a correlation between the growth in the amount of shared space facilities and venture capital funding,” which allows the startups to grow, said Black.
This will theoretically lead to more healthy entities in need of their own office space in the near future.
Indeed, Silverstein Properties just announced that two former office-sharing tenants from the Silver Suites Offices at 7 WTC have just leased their own offices in 4 WTC.
Silver Suites is also expanding to 44,000 s/f and will have 80 pre-built, business-ready offices and multi-room suites of varying sizes at its disposal whithin 4 WTC.
The Citco Group of Companies, a worldwide group of independent financial service providers, is also investing in the Manhattan co-working space.
The company announced that it will be opening a “unique market-entry solution” at 350 Park Avenue in September.
“Citco is uniquely positioned to help clients tackle the complications and challenges that can arise from venturing into a new market,” said the company’s global head of sales and product development, Jay Peller.
“We look forward to giving businesses of all sizes and growth stages – from start-ups to established investment firms to multi-national corporations – the support and solutions needed to compete and succeed.”
Even if Manhattan churns out a fresh crop of well-funded office tenants via local co-working spaces, Brooklyn may still remain a more attractive option.
Average asking rents fell in Brooklyn last quarter by more than three percent, hitting $36.50 psf on average.
Midtown Manhattan runs tenants about $40 more psf and the more competitive Midtown South is just under $30 higher. Downtown still runs at $55.07 psf on average.
While it appears that the rise of co-working tenants is helping landlords clear large vacancies in a single bound for the growing Brooklyn market, the traditional selling points of proximity and affordable rents are still the main drivers for the borough.