With large, established Class A tenants moving around Manhattan by choice, Class B and C tenants are being displaced as a result. These smaller tenants who signed their last lease 10 years ago or more, in Class A-/B buildings with rents of $40.00/SF or less, have very few options. Asking rents in Penn Plaza/Garment District have pushed well above $50.00/SF, and properties on William Street and Water Street have rents approaching $50.00/SF as well. Smaller tenants may be able to find some sublet spaces for less than $40.00/SF but they will have to compromise on quality.
One alternative for these smaller tenants is to join the flow of companies relocating to Brooklyn, Queens and Northern New Jersey which began a couple of years ago. The timing for these tenants can be advantageous as generous landlord incentives coupled with extensive tax credits can push effective rents below $20.00/SF for Class A space in Jersey City and Hoboken.
In January, over $20 million in total tax credits were offered to two Manhattan-based companies, C2 Imaging and FXDirectDealer LLC, to relocate from Manhattan to a pair of Class A buildings located in Jersey City. After factoring in the tax break, C2 Imaging would pay well below $20.00/SF. The commute time during rush hour to both buildings from Penn Station is roughly a 30-minute train ride.
However, while Northern New Jersey has ample existing buildings that can accommodate corporate tenants, the number of such properties in the Outer Boroughs is limited largely to Downtown Brooklyn. On the other hand, Brooklyn and Long Island City have some of the largest and most innovative adaptive reuse projects on the East Coast such as the former Jehovah’s Witness Center, Navy Yards and Industry City. These buildings suit the needs of its burgeoning industries ranging from maker/3-D printing to video production and social media. Time Inc.’s recent 55,000 SF lease at Industry City, which will host 300 employees in addition to a ground-floor video studio showroom for the publisher’s new automotive publication, illustrates the flexibility of these spaces.
Port Newark, the nation's third busiest port, is serving as an attraction as well for companies considering moving or expanding outside the five boroughs. A partner for Brooklyn-based B&C Packaging, which recently expanded in Newark rather than within Brooklyn, praised the ease in which vendors deliver to the company's New Jersey location. A move to New Jersey can also be beneficial for companies who as a result would then be closer to New-Jersey-based clients.