Brooklyn Returns To Industrial Roots As Office Boom Fizzles, Amazon Moves In

Around the turn of the 20th century, before Brooklyn was the global brand it is today, the industrial buildings that line the borough's waterfront were the blue-collar engine that powered the rise of New York City. 

Today, the expansion of e-commerce, accelerated by the coronavirus, has made those same buildings and neighborhoods crucial to the city’s economy, and developers are renewing the land that used to be home to the industry to pave way for a 21st-century industrial renaissance.

“Brooklyn is defined by its industrial past in a way that a lot of cities in America aren’t,” said Greg Young, a Brooklynite and the co-host of Bowery Boys, a podcast about New York City history. “A lot of industries left and there were a lot of abandoned buildings … Now there is a new sort of industrial, the e-commerce industry, that is finding Brooklyn attractive.”

Since the economic heyday of Brooklyn’s manufacturing era ended around the 1960s, the borough has evolved several times over, with the bones of its industrial past at its foundation.

Out of the economic stagnation of the 1970s and 1980s, artists and makers took advantage of cheap rent and moved from Manhattan into Brooklyn neighborhoods. Former factories were renovated into artists' lofts and apartments through the 2000s.

Decades of gentrification starting in the 1980s have transformed the working-class borough. Brooklyn became home to not only young artists and hipsters, but to upper-middle-class and wealthy families, celebrities and tech workers as the borough’s cultural cachet put its residential market in high demand over the past decade.

Rezonings, which ushered in higher-price multifamily development, hastened this trend while burgeoning tech companies began taking up office space. Activists say the development hasn't been equitable and has displaced working-class people of color as rents have risen.

By the mid-2010s, some in the real estate industry foresaw Brooklyn’s transformation from a close-in suburb to an office hub destined to one day rival Manhattan. They began developing office campuses, hoping to attract big tech companies and other traditional Manhattan tenants. The migration never happened, and several large, new office projects remain mostly empty.

At the same time, industrial rent rates have been rising significantly while vacancies plummeted during the last few years as the beginnings of the e-commerce revolution took hold. When the pandemic hit, workers left their Manhattan offices and hunkered down to wait out the crisis — moving almost all retail activity from stores to warehouses.

As a result, distribution centers are the most in-demand property type in Brooklyn right now, with developers trying to build new spaces as demand outstrips supply. Amazon alone has taken up at least 1.2M SF in Brooklyn for delivery and distribution centers in the last year.

“It’s a little ironic because we’ve spent the last 20 years rezoning industrial sites in New York into residential and commercial, and now we’re trying to switch them back,” Madison Capital Managing Director Jonathan Ratner said. 

Not everyone is keen on Amazon and other e-commerce companies' growth in the borough. Last year, activists successfully blocked private developers' attempted rezoning of Industry City, and this year, they are setting their sights on Amazon.

Nikki Lucas, a New York City Council candidate for the district that includes East New York, said she wants the city to blunt Amazon's real estate push in the borough by dedicating older industrial for small businesses and community organizations, rather than distribution centers that she says don't provide good jobs.

“If we don’t move proactively on the remaining spaces, we are going to miss out on bringing in a thriving industrial [economy], and folks will not be able to pay for their rent,” she said. 

Strategically Located

Consumer spending shifted dramatically to online stores as the pandemic hit, increasing 44% in 2020, with people spending over $861B at American e-commerce companies.

The surge in demand led to a space race. In New York City, more than 7.2M SF of industrial space was leased in 2020, the vast majority of which will be used for e-commerce, according to CBRE. The expansion has been propelled by one giant player: Amazon, which is set to take up over 1M SF of logistics space in Brooklyn alone. 

Amazon signed new leases of 312K SF at 280 Richards St. and 336K SF at 640 Columbia in Red Hook, as well as 211K SF at 12555 Flatlands Ave. and  211K SF at 2300 Linden Ave., both in East New York.

Amazon’s main goal is to set up as many last-mile distribution centers as its increasing customer base demands. As more consumers get hooked on the speed and convenience of Amazon, the company has a standard that can only be met through strategically located facilities near densely populated urban centers.

Brooklyn’s highway systems and proximity to millions of customers make it an especially desirable location for these facilities. In particular, the old manufacturing neighborhoods that sit along the bay of the East River have become the most appealing real estate plays for the online retail giant, said Ratner, who led the development of Liberty Bklyn, a 1.3M SF industrial complex located at 850 Third Ave. along the waterfront of the Gowanus Bay.

“They are strategically located in a Red Hook or a Sunset Park or a Maspeth where there is critical access to Manhattan through the arteries, and also great access to other parts of Brooklyn and Queens that are heavily populated where there is a lot of economic activity,” Ratner said. "Specific submarkets that have that strategic access have been seeing the lion's share of the deals.”

The demand frenzy for logistics real estate over the past year has also run up against a reality: There is a limited amount of industrial real estate stock available, said commercial leasing broker Dan Marks, a partner at TerraCRG, a firm that specializes in Brooklyn real estate.

“A few years ago, there was this industrial boom where every major developer or investor in the New York City area was looking to satisfy the need for last-mile distribution,” Marks said. “With the kind of demand for space within the New York City area, you’re limited in the number of sites.”

It’s hard to build industrial space in Brooklyn. Despite the huge demand, only a handful of areas in the borough allow for industrial development, he said. 

Between the Great Recession and 2018, there was little speculative industrial development nationwide. While the amount of construction has increased since then — with over 6.6M SF in the New York City's construction pipeline by the end of the last year — the city still has a supply-demand gap.

With limited stock and rezoning lengthy and difficult, developers will likely use existing industrial sites and the bones of old factories to build for the next industrial boom, Ratner said. 

“I think you’re going to start to see some more activity … related to the waterfront sites, there are going to be more acquisitions and tenancies related to being able to make direct access to the water,” he said. “I think part of why those buildings are seeing activity is just naturally how they are located in position to the arteries that help them to transport goods around the city.”

‘Devoted To Industry’

The majority of Brooklyn’s industrial stock is over 75 years old, Ratner said. 

After the Erie Canal was built in 1825, Brooklyn, an independent city at the time, became a prime location for industrial development and the economic engine for the larger New York City area. By the 1850s and 1860s, neighborhoods like Red Hook, Gowanus, East New York, Sunset Park and Williamsburg along the bank of the East River were shipping hubs and centers for manufacturing. 

“So much industry that was tied to the waterfront, every inch of it was really devoted to industry,” Young said. 

The sugar industry thrived during this period, and it was Brooklyn’s staple until the 1940s. The American Sugar Refining Co., which sat along the northern part of the bay in Williamsburg, produced a million pounds of sugar per day in the 1970s, providing the United States with 68% of its sugar supply, according to the Brooklyn Library. 

Two miles down the bay and across from Manhattan’s Lower East Side, the Brooklyn Navy Yard, built in 1801, was “the largest naval construction facility in the United States,” according to the library. 

The Bush Terminal Co., owned by Irving Bush, established seven piers and freight stations along the southern portion of the Brooklyn shoreline in Sunset Park during the early 20th century, the current site of Industry City. 

Hundreds of thousands were attracted to the jobs that Brooklyn’s industry created, forming the foundation of the borough that today has nearly 2.7 million residents living in its 70 square miles. 

“If you look historically, Brooklyn emerged as this industrial center because Manhattan was growing as a force,” Marks said. “These goods needed to be produced somewhere, so it made sense that the heavy industry was in Brooklyn.”

During the mid-20th century, the creation of the interstate highway system and the rise of container shipping led to an exodus; industry wasn’t restricted to Brooklyn any longer, Young said. Manufacturing businesses left behind huge plots of land and the former factories they built.

“All these buildings have been emptied and hollowed out because industry left,” Young said. 

With its economic engine gone, Brooklyn was in economic decline in the 1970s and 1980s. Rents were low and crime rates were high. 

But its industrial bones drew in a new generation of artists and other creatives. As Manhattan roared with success in the 21st century, Brooklyn grew into a desirable place to live for its young transplants, its brownstones emerging as attractive places to raise families. 

Many of its old industrial spaces have been transformed into residential and other types of commercial spaces, and in the mid-2010s, warehouse-to-residential and warehouse-to-office conversions were popularized in Brooklyn and spread to big cities around the country. 

A Pivot Toward The Past 

Developers thought Brooklyn’s next phase was one of a full economic center in its own right, separate from Manhattan. They started building the first big, new office buildings the borough had seen in a generation, envisioning a hub of major tech companies following in Etsy’s footsteps. 

That’s what Thor Equities, which owns a former sugar refinery site at 280 Richards St. in Red Hook, thought when it made plans for the land in the years following the Great Financial Crisis. 

“We really thought that the office component was going to be the most lucrative to the area and to us … so we went all out and had Norman Foster design an incredible, really wonderful project,” Thor Equities Chief Operating Officer Melissa Gliatta said.

But the winds never shifted across the East River.

As Thor was planning its building, Rudin and Boston Properties, JEMB Realty, and a joint venture of Rubenstein Partners and Heritage Equity Partners all started building massive new projects, and tech giants like Facebook, Google and Amazon were signing huge New York City real estate deals — all of which happened to be in Manhattan.

“We felt like we weren’t having any traction [on leasing] no matter the fact that we offered this incredible project … we knew there wasn’t going to be any way we could feasibly develop that,” she said. “That’s when we said, 'You know what, this really belongs in last-mile logistics now,' and that’s what prompted us to really put the plan together.” 

That pivot happened in 2019, when e-commerce companies began looking for space in New York City's undersupplied market.

“To be honest, we didn’t have too many paths to go on, if you want to know the truth,” Gliatta said.

Its path became clearer when Italian development company Est4te Four, which had planned to convert six old industrial buildings along the East River into an office complex, gave up on the project in 2017 and sold the buildings to the Sitex Group for $110M. Sitex leased the space to UPS, and a year later sold the property to the shipping company for $303M, nearly three times the amount it paid only a year prior. 

“This was the transaction that really set everything off in a totally different way,” Marks said. 

Five months ago, Thor Equities' pivot paid off when it scored the biggest player in Brooklyn for its warehouse: Amazon inked a 20-year, 312K SF lease to take up all of 280 Richards St.

The property's journey from hopes for office to an industrial reality underscores the economic truth of Brooklyn: It has always been the blue-collar yin to Manhattan's white-collar yang, and that dynamic has been strongly reinforced over the last year.

“New York is going to emerge from this,” Marks said. “There are fundamental reasons why, and industrial is a huge part of that story.”