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The resurgence of Brooklyn as a commercial and residential hub has transformed industrial fundamentals in the North Brooklyn Submarket. Thanks to the burgeoning commercial presence in evolving neighborhoods across the submarket, and a substantial uptick in tenants eager to fill new apartments, logistics buildings now compete with commercial and residential projects in the search for land to develop. As a result, new large-scale logistics deliveries are nonexistent, and older industrial inventory is frequently lost to conversions or ground-up redevelopment of other property types.
Flourishing commercial demand and limited supply of new industrial inventory have allowed for more- aggressive rent growth compared to the national growth rate, as North Brooklyn market rents increased to near 40% in the past five years.
North Brooklyn represents one of the largest industrial submarkets in the New York metro. However, the escalated demand for other property types encouraged rezoning laws and continues to reshape the landscape of the submarket. The overall inventory levels have decreased every year post-recession, and only a handful of smaller industrial projects have delivered this cycle.
The larger stock of the deliveries was located in the East Williamsburg Industrial Park off the east side of the Brooklyn Queens Expressway (Interstate-278), which has seen far less exposure to conversions. The North Brooklyn area is devoid of any industrial product in the pipeline, as no industrial projects have recently broken ground in any part of the submarket. With multifamily vacancies near historic low levels and office rents far exceeding the precession peak, it is not altogether surprising that landowners are choosing to target other
property sectors rather than industrial development when possible.
The explosive growth in the demand for residential and office spaces in the area is also fueling North Brooklyn sales activity ahead of all other submarkets in the New York metro. Sales volume, in terms of the number of deals and asset values traded, has grown exponentially since 2011. One of the largest buildings sold in 2018 was a 115,000-SF warehouse at 202 Tillary St., in Downtown Brooklyn. Maddd Equities and Joy Construction traded for the asset at $30 million ($261/SF) in January, with plans to redevelop the property into a larger residential building that will include a portion of affordable units. A few months earlier, in the adjacent neighborhood of DUMBO, Hope Street Capital acquired a 22,000-SF warehouse for $60 million at 74 Adams St. The transaction includes development rights of about 145,000 SF, all of which developer Jeffrey Gershon plans on utilizing for a 10-story residential building, with a number of amenities and commercial space.
While the increased sales volume is driven by conversion assets in evolving neighborhoods such as Downtown Brooklyn and DUMBO, there is still demand for industrial use in less-desirable residential neighborhoods, like Red Hook. The largest transaction this year includes plans to develop an 88,000-SF warehouse property across from Red Hook Park. In May 2018, DH Properties Holdings signed a 99-year ground lease at 537-555 Columbia St., with intentions to deliver a Class A industrial development for last mile distribution tenants. The transfer of the new leasehold is valued at $280 million over the term of the lease.