Greenpoint's industrial revolution: Prices are rising due to changes in the industrial market

Shortly before the American Civil War, when shipbuilders and manufacturers dotted the East River waterfront, Greenpoint experienced its first industrial revolution. Today, Greenpoint is going through a different type of industrial revolution. In just a few short years, price per s/f for vacant land, warehouse, factory and garage properties in manufacturing zoned locations has more than doubled. This phenomenon can be attributed to scarcity in the marketplace combined with increased demand for commercial space. The fact that prices have climbed from roughly $150 per s/f to $300 per s/f is a direct result of city zoning initiatives and increased residential development of historically industrial neighborhoods. There is no sign of these numbers waning in the near future. There has been a noticeable increase in sales figures for industrial buildings over the last three years. In September 2005, a property located at 80 Beadel St. sold for $880,000, or $110 per s/f. At the time this number was not irregular, though it was slightly lower than what the market was demanding. Two months later Massey Knakal sold a 4,085 s/f, single story warehouse at 91 Harrison Pl. in nearby Williamsburg for a then astonishing $725,000, or $177 per s/f. It was the highest price per s/f we had seen in Community Board One for a fully built, single story M-zoned property. Since this sale, prices have consistently increased to levels above the initial expectations of the industrial marketplace. Now in 2008, the $300 per s/f figure has not only been achieved but also repeated. 108 Dobbin St. sold for $311 per s/f and 85 Guernsey St., a two-story, M-zoned property, sold for $320 per s/f. These drastic increases can be attributed to a number of changes in the industrial real estate market. In May 2005, the Greenpoint/Williamsburg waterfront was rezoned to permit residential and mixed-use construction. Many of the blocks deeper into the neighborhood were rezoned as well. Other historically industrial neighborhoods like Red Hook, DUMBO, Long Island City and West Chelsea experienced either rezonings or increased variances which further fueled residential development. These zoning changes and variances, coupled with the public's increased interest to live in these neighborhoods, greatly reduced the city's industrial stock. Of the 850 commercial properties in Greenpoint, 308 are currently zoned residential, many of which are already under construction for luxury condos. The amount of rezoned properties in Williamsburg is even greater. Not only has widespread residential construction changed the appearance of these neighborhoods, but it has led to increased demand for the outlying properties that remain commercially zoned. Many tenants and users were displaced from their spaces to make way for residential developers. This displacement has put a strain on the remaining industrial stock, which was already seeing a major decrease in activity. 22 manufacturing zoned commercial properties sold in Greenpoint in 2005. In 2006 there were five such trades and in 2007 just six. While there has been an increase in users looking for space, there simply isn't that much available anymore. Any first year macroeconomics student can tell you that this is simply a case of supply and demand. Prices have sharply increased and will most likely continue to do so, albeit at a slower pace. Much as the increase in industrial prices was affected by a strong residential development market, so will it be affected by a poor residential real estate environment. Fears of a condo glut, inability to finance construction projects, change in 421-a abatement legislation and unrealistic expectations from sellers of residentially zoned land have stopped any interest in new development in the area. A recently thriving building boom has, in a very short period, come to a standstill. While single story residentially zoned properties were more valuable as development sites just a few short months ago, they are starting to make more sense as commercial user properties. Buyers don't want to build condos anymore because it is no longer financially feasible but people are still looking for usable commercial space. A site that was worth more as a development site in 2006 or 2007 could very likely be worth more as a user property today. This will bring more product to the industrial user market which should in turn lower the scarcity of product to some extent. Historically, most real estate investors have ignored industrial property to concentrate on multi-unit, development or retail driven assets instead. It is these markets that have dominated headlines and investor interest in this most recent boom and subsequent downfall. If more buyers had concentrated on industrial property in North Brooklyn throughout the past three to four years, they would have seen a 100% increase in value from appreciation alone. I don't expect to see the sharp increases that these last three years have experienced but I would consider industrial real estate in North Brooklyn to be a safe bet in a market where everything else is anything but. Philip Kean is a director of sales at Massey Knakal Realty Services, New York, N.Y.