When the National Federation of Community Development Credit Unions began looking for a new home because its lease at 120 Wall St. was expiring, Brooklyn seemed like the top option for a nonprofit aiming to cut costs.
There was one problem — the group couldn't afford the rent.
"Everyone thinks you get these dirt-cheap prices in the outer boroughs, but Brooklyn was more expensive," the president of the federation, Clifford Rosenthal, said. It eventually signed a lease for the 33rd floor of 116 John St. in Lower Manhattan.
For one of the first times in recent memory, brokers are saying office space is more affordable in Lower Manhattan than in Brooklyn.
While average rents in Lower Manhattan are still costlier — $50.41 a square foot versus $31.86 in Brooklyn, according to Cushman & Wakefield — the numbers can be misleading, brokers said, as they are asking rents, not the actual rents at which leases close. In addition, landlords in Lower Manhattan, spooked by the softening market and rising vacancy rates, are offering free build-outs and other generous concessions. At the same time, the popularity of downtown Brooklyn and DUMBO has left little affordable inventory for nonprofits and other cost-conscious companies.
"There's this perception that the boroughs are cheaper than Manhattan, and I don't know that that's true," a senior director at Cushman & Wakefield, Carri Lyon, said. She said she is working with a social services agency that looked "extensively" in Brooklyn before entering into negotiations for space in Lower Manhattan. "We found that the better deal for them was downtown," she said, adding that she couldn't name the tenant until the deal closed.
Landlords in Lower Manhattan are more anxious than in the past to give concessions, due in part to the 7.2% vacancy rate, an increase of one percentage point from the fourth quarter of 2007, according to Cushman & Wakefield. "It's a higher vacancy rate than it was down here, and landlords are quick to respond," Ms. Lyon said.
Another incentive for locating in Lower Manhattan is the city's Commercial Revitalization Program, which confers real estate tax abatements that can save tenants who are downtown $2.50 a square foot on their rent. "It's a nice extra goody from downtown," Ms. Lyon said. Many of the tax incentives available for companies moving to boroughs other than Manhattan, such as the city's Relocation And Employment Assistance program, don't help nonprofits because they already have tax-exempt status.
While tenants are finding concessions in Lower Manhattan, across the bridge in Brooklyn there is a severe shortage of affordable office space.
"It's never been this tight," the chief executive at Brooklyn-based Corporate Real Estate Services, Christopher Havens, said. "The market's gotten very strong and Brooklyn's gotten very strong. This area's never received this kind of attention."
According to Newmark Knight Frank, downtown Brooklyn had only 1.27 million square feet of vacant office space available for rent at the end of the first quarter of 2008, compared with 5.36 million square feet in Lower Manhattan.
Mr. Havens estimated that in downtown Brooklyn and DUMBO, there are perhaps 40 buildings to choose from, and roughly half of those are Class A, where the rent is out of reach of many small companies looking for good value.
Lower Manhattan, on the other hand, has "quite a diversity of office space," the principal of real estate consulting firm Denham Wolf, Jon Denham, said. "There are more opportunities in Lower Manhattan," he said, including "smaller, older buildings" that are often available for less than new office space in Brooklyn.
Not every nonprofit has found that it is more lucrative to be in Lower Manhattan than Brooklyn. In fact, when the Ms. Foundation for Women announced in February it would leave its headquarters in Lower Manhattan for 12 MetroTech Center in downtown Brooklyn, observers expected that a flood of nonprofits would begin fleeing high rents in Manhattan for Brooklyn.
That hasn't yet come to pass, according to the vice president of the nonprofit practice group at CB Richard Ellis, Suzanne Sunshine.
"There isn't much product in Brooklyn. I'm back in downtown" Manhattan, she said. "There are more options in downtown than there were a year ago."