In Queens, Residential Development Is Fueling Commercial Demand | News | Tishman Speyer
In Queens, Residential Development Is Fueling Commercial DemandThe Wall Street Journal September 18, 2016
Developer Tishman Speyer was prepared to build its mammoth office-retail complex in Long Island City on spec.
But to the surprise of chief executive Rob Speyer, it didn’t need to.
“We pre-leased more than 800,000 square feet, which was extraordinary, and we weren’t expecting that,” he said.
In the past several years, real estate players have taken hold of Long Island City’s older factories and warehouses and turned them into offices and light-industrial space. But the pre-leasing of more than half of Tishman’s $700 million project—an entirely new complex of buildings—suggests an important advance in the Queens neighborhood’s commercial evolution.
“We are in the infant stages of commercial development in Long Island City,” said Evan Daniel, executive vice president the Commercial and Investment Property Group for ModernSpaces LLC. “You have to have the people first to have the commercial and retail survive.”
Tishman, which is also putting up three apartment towers in the neighborhood, announced this summer it was building the 1.1-million-square-foot office and retail project. It has investment from partner Qatari Diar Real Estate Co., the real estate arm of Qatar’s sovereign-wealth fund.
Plans call for two 27-story office towers with a 1.5-acre park atop a four-story retail building at Queens Plaza South and Jackson Avenue. The retail building will be 43,000 square feet and include a food hall, a fitness center and restaurants. Construction is set to begin next year and the finish date is 2019.
Shared-office space giant WeWork Cos. will set up a 250,000-square-foot location, and plans to take about 550,000 square feet. Macy’s said it didn’t have specific plans yet as to which business units would occupy the space in 2020. A spokeswoman noted the retailer already has a presence in Long Island City—a studio where Macy’s photographs its merchandise is in a nearby redeveloped building called The Factory.
In the past few years, other fashion industry companies have been moving some operations to Long Island City. They often are leaving more expensive Manhattan rents and taking advantage of city tax credits for relocating to targeted areas.
New York City also has played a role in Long Island City’s maturation. In 2003, Tishman was able to purchase the options from the city and a private seller to develop the Long Island City sites. On part of the sites, Tishman already has developed and sold a 700,000-square-foot office building that is adjacent to its new commercial complex.
The city’s Economic Development Corporation also is trying to boost the area’s office and light-production space with a request for proposals to develop two waterfront properties.
Tishman’s trio of apartment towers under construction are across from the commercial complex. Developed with H&R Real Estate Investment Trust, the buildings will have 1,900 apartments and a 2.5-acre private park.
“It wouldn’t surprise me if the people who work in our office development live in our residential development,” Mr. Speyer said.
Indicators suggest a healthy demand for office space in the area. Long Island City’s office inventory stands at about 13 million square feet, according to real estate services firm Cushman & Wakefield. In the second quarter of 2016, the overall vacancy rate fell to 7.7%, a drop from 9.3% for the same period last year. The vacancy rate for class A (or high-quality) office space was 6.4%.
‘It wouldn’t surprise me if the people who work in our office development live in our residential development. ’
—Rob Speyer, chief executive of Tishman Speyer
Overall asking rent rose to $38.04 a square foot, compared with $35 a square foot a year ago, according to Cushman.
In the second quarter of 2016 for Manhattan, the average asking rent was $72.99 a square foot; average asking rent for class A office space were $78.50. The borough-wide vacancy rate was 8.8%.
“The Tishman project is the cornerstone of this next phase of Long Island City in the sense that you are finally getting large scale new office creation for a market that is desperate for it,” said Elizabeth Lusskin, president of the Long Island City Partnership, a local development organization.
In another Long Island City project, the Vorea Group LLC secured a long-term ground lease for a site at 23-20 Jackson Ave. and is in contract to purchase 12-01 44th Ave., where commercial uses likely will be the focus, according to the company. Vorea is traditionally a multifamily developer focused in Long Island City and the Brooklyn neighborhoods of Williamsburg and Greenpoint.
For the Jackson Avenue site, Vorea is considering the inclusion of about 30,000 square feet of retail space with offices above it in a building that overall would have 50,000 to 65,000 square feet, said Peter Papamichael, a Vorea principal.
The 44th Avenue development, which allows for a building of about 30,000 square feet, has drawn interest from a range of tenants, including a beer garden, a gym operator and schools.
Read the full article