"Despite a challenging climate in property financing, taxpayerassets will remain highly coveted by investors seeking to trade outof more management-intensive properties, such as apartments," saysJ.D. Parker, regional manager Marcus & Millichap's Brooklynoffice, in a prepared release.

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The report notes that 750,000 sf of retail space is expected tobe delivered during 2008, compared with 192,000 sf last year. Theretail vacancy rate is expected to end the year at 4.7% due to atemporary softening of demand, while asking rents climb an averageof 9%. For national tenants leasing space for the first time inBrooklyn locations, new rents are expected to rise at a muchgreater rate. According to the report, the median price in themulti-tenant sector has risen 11% to $267 per sf during the mostrecent 12-month span; that compares with a 4% gain in the previousyear.

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To Brian Leary, managing director of Massey Knakal's Brooklynoffice, the upturn in retailing is not surprising and has been along time coming. "Brooklyn is tremendously underserved from aretail perspective," he tells Real Estate New York. "Thenational average figure for retail space per individual issomewhere in the range of 300 to 500 sf. In the outer boroughs,it's more in the range of 100 to 175 sf of retail for everyindividual."

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Helping to drive demand, Leary says, is that retailers now havea clearer idea of where to sxcout for locations. "The market hasbecome much more efficient over the last six years, in the sensethat firms like ourselves, Marcus & Millichap, CB RichardEllis, Cushman & Wakefield and Newmark Knight Frank have allentered the outer borough marketplace," he says. That has made itmuch more efficient from a standpoint of market information andmarket knowledge. In previous years, a lot of these retailers mayhave known the market existed, but I don't think the informationwas as good as it is today."

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Leary cites the borough's population density—2.5 million, thecity's highest—and "the tremendous transit hub that is in placethroughout the borough, not just downtown Brooklyn. Any retailerwould be able to acknowledge very quickly that there's anopportunity in that market."

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He notes that national retailers which had previously ignoredBrooklyn "have been aggressively pursuing the market. The greatestexample of that is Target." The discounter with a cache oflow-price chic initially opened at Atlantic Terminal, then opened asecond site at 519 Gateway Dr. and a third at the junction ofFlatbush and Nostrand avenues, "and I think their experience inevery location has been nothing but stellar numbers."

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Similarly, Leary predicts the newly opened Ikea site will be"one of their most successful sites," due to the density ofBrooklyn's population, the plenitude of public transportation andthe borough's accessibility by car, thanks to three bridges intoBrooklyn. To take advantage of the store's waterfront location,Ikea established a water taxi for shoppers, "and I wouldn't besurprised if their usage is higher than the water taxis forcommuters."

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There's another sector of retailing that has tremendous growthpotential in the borough, and that's lodging. "If you go back tothe 1950s, there were 4,000 to 5,000 hotel rooms in Brooklyn," saysLeary. "Over the last 20 years, there had been fewer than 500 hotelrooms. Clearly, there's tremendous demand for moderately-pricedrooms with close proximity to the city."

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Some of that demand is locally driven, Leary points out:Brooklyn families who have limited accommodations to put upvisiting friends and relatives are looking for hotels to meet theirneeds. He predicts that the borough's higher profile as an officecenter will help spur demand, noting, "There's currently 17 millionsf of office space in Brooklyn." Cultural institutions such as BAMcan bring out-of-towners looking for convenient access to Brooklyn,and Leary cites another potential driver: "one thing people don'trealize is that Brooklyn alone has about 75,000 collegestudents."

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That proliferation of students also has implications forretailers serving a college-age population, Leary points out. "Forfirms that started in other cities and are looking to penetrate theNew York market, accessing the Manhattan market is much moredifficult than accessing the Brooklyn market, which really housesthe same demographics."

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.