11/21/08

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With new projects, Queens offices get company

Joseph Pistilli of Pistilli Realty Group is constructing a 10-story office building in Astoria. He says businesses in Queens need room to grow.

In Queens, business is usually done from a storefront or a second-story converted apartment. The borough has fewer high-rise office buildings than Manhattan or Brooklyn, but new developments will soon add to its supply of office space.

Record-high rents for Manhattan office space and continued residential growth in Queens are spurring new commercial development in the city's largest borough. One developer is putting up a 10-story Class A office building in Astoria and has plans to expand elsewhere in Queens.

Long Island City, Queens's closest approximation of a Manhattan-like business hub, will see the opening of Citigroup's 570,000-square-foot Court Square Two in 2007. Late last year, TDC Development International completed a mixed-use commercial project in Flushing with more than 190,000 square feet of offices, and a proposal for zoning changes in Jamaica may encourage development there.

Queens won't top the rest of the city with its stock of office inventory any time soon. The borough has just about 21 million square feet of office space compared to Brooklyn's 24 million and Manhattan's 440 million, according to Robert Sammons of Colliers ABR, who tracks commercial space throughout New York City.

And only 4.7 million square feet of office space in Queens is in full-service, Class A buildings.

The same type of Class A office space accounts for 7 million square feet in Brooklyn and 225 million in Manhattan. Queens does have the edge over Staten Island, however, which has 3.2 million square feet of overall office space, 1.3 million of which is considered Class A.

Rezoning efforts in Long Island City in recent years have increased commercial development, with companies like Citibank and Metropolitan Life Insurance headquartered there.

However, Long Island City recently suffered a blow in its bid to become a lower-cost option for corporations that would typically locate in Manhattan when MetLife, which moved its operations from Manhattan to Long Island City in 2001, inked a deal a month ago to move its operations back to Manhattan. The company signed a lease for 12 floors at 1095 Avenue of the Americas, or 410,000 square feet of space, with plans to move in next year.

Nearly half -- 2.2 million square feet -- of all Class A office space in Queens is in Long Island City. Because the office market in Queens is dominated by Class B facilities -- mostly 40- to 50-year-old, low-rise buildings along commercial streets that aren't good office space locations, Queens agents and developers see some potential for new office projects.

Joseph Pistilli, president of Pistilli Realty Group, says the market is already picking up. He's constructing a 10-story office building with two floors of underground parking on Newtown Avenue in Astoria. The Class A building should be open to tenants by fall 2007, and Pistilli is in negotiations with a local government agency that will likely occupy 20,000 square feet in the building. He expects other tenants to be mostly medical-related businesses.

The 70,000 square feet of office space, which he's planning on naming Pistilli World Plaza, will be a full-service building with parking for 60 cars.

Pistilli believes office buildings like his Astoria project will be welcomed by local business owners. "What we are lacking," he explains, "are office buildings with good lighting and a comfortable environment."

The professional spaces in the borough, located above stores, are often in converted apartments that limit options for companies to physically grow. "With so much residential development, a lot of businesses are growing," Pistilli says. "They need a place to work and continue to thrive."

Pistilli's office space portfolio already includes high-end office buildings in other areas of the city and he has plans to continue expanding in Queens. He has a 65,000--square-foot building, Pistilli Corporate Plaza, near the Whitestone Expressway, and other facilities on Long Island. He has also just purchased the old Jamaica Savings Bank building from North Fork Bank and plans to build offices there.

Forest Hills is also touted as another area with office growth potential. It's an attractive neighborhood and has a good infrastructure, but it sits farther out from Manhattan than Long Island City, making it less desirable for large companies to move even their back-office operations there.

Nikolay Diankov, a Massey Knakal sales director specializing in Forest Hills, Rego Park and Kew Gardens, says he knows of no major office projects under way.

The mayor's office can also help generate commercial development, as it did in Flushing, where TDC Development International in November completed a mixed-use commercial project that included more than 190,000 square feet of office space.

Diankov points out that the mayor wants to rezone a chunk of Jamaica, which may provide an incentive for commercial development there, but says nothing will materialize for another two to three years.

Sammons agrees that there just isn't enough quality space in Queens. The only major Class A office project currently under way that Sammons knows about is at Court Square Two, Citigroup's building in Long Island City. That 570,000 square feet is set to open sometime in 2007. "Certainly I think Queens is underserved," he says. "Not only for Manhattan back-office operations, but also for businesses already in Queens."

Long Island City, he says, is particularly ripe for development. When the New York City Planning Commission approved rezoning in Long Island City in 2001, developers, brokers and retailers saw great potential for commercial and residential development to replace the area's manufacturing zones. Now, nearly six years later, the promise of major growth has yet to be realized and few projects have been built or planned.

One project planned in Long Island City is Silvercup Studios West, a 3-million-square-foot mixed-use development at the foot of the Queensboro Bridge that will include 650,000 square feet of office space.

"There just isn't the service industry there yet to support office workers," Sammons says about Long Island City. "It will come together, but it's taking a lot longer than anyone expected."

Still, renting in Queens is a bargain compared to Manhattan. Average rent for office space in Queens for Class A space is $31.17 per square foot. Though that might seem steep, says Sammons, the market is pretty tight with a solid 8.2 percent vacancy rate.

The only major vacancy he knows of is 125,000 square feet at 24-01 44th Road, the United Nations' credit union building, a recently completed project in Long Island City. Manhattan Class A space, on the other hand, rents for more than twice the Queens rate, at an average of $68.29 per square foot.

Rent in Queens has only risen slightly in the past few years with Class A rent in 2004 averaging $28 per square foot, while Manhattan rents increased by 30 percent in 2006, making it a record year.

The one thing that might push more offices to the outer boroughs, says Sammons, is that the Manhattan market has gotten so expensive in recent years that price-sensitive businesses, particularly nonprofit organizations that want to stay in New York City proper, are forced to move to outer boroughs.

Pistilli agrees and expects more companies to move to Queens.

"The smart money is going to come on this side of the river," says Pistilli. "Plus, the views are better here."