Fulton Market
Fulton Market (the proper is roughly eight by five block neighborhood as opposed to CoStar’s broader designation) has become worthy of its own submarket. In this recent cycle the area has established fundamentals and growth that will continue to outshine the rest of the city. The driving force behind this has been a combination of factors:
- In addition to the “back to the city” trend, there is a strong demand from ‘coastal companies,’ that would traditionally maintain offices in New York or San Francisco who are looking to minimize or at least reduce operating costs.
- Beyond relocation we are seeing “densification.” Even law firms are beginning to seek smaller spaces. Generally speaking, it isn’t uncommon to see a law firm move from a traditional 600 square foot per person space to roughly 300.
- In order to justify this density tenants desire for amenities increases, in turn you have top floors being given up for fitness centers, lounges and rooftop decks
- The area has proliferated in this dramatic fashion in large part because the neighborhood’s architectural history, restaurants, etc. are being viewed as amenities in and of themselves. This in turn, has redefined the architects role into creating a space that defines itself within the larger setting, while still bringing something new to the table (even if it is merely a more refined sense of “place” as opposed to just another office building).
- Panelists also underscored the value of existing and growing fiber optic and general tech infrastructure in the Fulton Market. For example, Comcast has invested millions in the area in order to ensure the connectivity of these new projects for not only the tech companies, but anyone.
Additional Developments
While Fulton Market is expected to continue to proliferate, other emerging areas in the city are expected to be up and down the riverfront. At the moment, this is notably along the south branch with the 78, Bank of America Tower, BMO Tower, the Old Post Office, Riverline and Southbank, amongst others. It is unclear what the limitations are in terms of how far north or south this trend will carry. Additionally, the proliferation of “neighborhood offices” was mentioned, alluding to the megadevelopments, such as Lincoln Yards, that will essentially redefine how many people live, work, and commute.
Construction companies, in this case O’Neil Construction Group, are facing record high costs. In turn, they are turning to specialty, savvy subcontractors who are investing in pre-fabrication in order to reduce the amount of on-site construction hours. Tech is also being utilized in order to assess and survey buildings, 3D scanning interiors and using drones to identify work on the exterior.
Co-Working and its place in the market
Co-Working was largely shunned by the first panel for one reason or another, but the second panel was keen to note its place and relevance in the marketplace, both short- and long-term. While the bankruptcy of Regus around the time of the dot-com bubble shows clear risk in the business model, panel members used the cliché “this time it’s different.” Coworking spaces still occupy a very small portion of the entire office inventory of any given market. In a downturn, participants believed there should be little problem finding demand for that two-four percent space of the market.
- The CBRE executive on the panel pointed out that a building recently sold with WeWork lease occupying roughly 30 percent of the space, at a comparable cap rate to that of a similar, ‘more traditional’ multi-tenant building. This is not necessarily the norm, but it is a positive trend.
- It was a common opinion that deterrence and drama surrounding co-working, more specifically WeWork, is largely the result of the media.
- Lenders seem to be taking a more critical stance on co-working as McCaffery was unable to secure refinancing for a property with a large WeWork lease (this was bad timing as it coincided with the retraction of the IPO)
Brokers and investors made note that we are seeing a resurgence in CORE real estate investments, as opposed to value-add or opportunistic. The panels referred to this as “back to the basics,” in turn you are seeing a transition to longer holding periods and generally lower, albeit less risky, returns.