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National and regional retailers continue opening up shop in Brooklyn despite the current economic downturn, according to a Q2 retail research report by Marcus & Millichap. The report notes that brands such as Morton’s Steakhouse, Urban Outfitters, Circuit City and Trader Joe’s have leased space in the borough, and the first Ikea store in New York City just opened on the Brooklyn waterfront, anchoring the Triangle at the Junction development.

“Despite a challenging climate in property financing, taxpayer assets will remain highly coveted by investors seeking to trade out of more management-intensive properties, such as apartments,” says J.D. Parker, regional manager Marcus & Millichap’s Brooklyn office, in a prepared release.

The report notes that 750,000 sf of retail space is expected to be delivered during 2008, compared with 192,000 sf last year. The retail vacancy rate is expected to end the year at 4.7% due to a temporary softening of demand, while asking rents climb an average of 9%. For national tenants leasing space for the first time in Brooklyn locations, new rents are expected to rise at a much greater rate. According to the report, the median price in the multi-tenant sector has risen 11% to $267 per sf during the most recent 12-month span; that compares with a 4% gain in the previous year.

To Brian Leary, managing director of Massey Knakal’s Brooklyn office, the upturn in retailing is not surprising and has been a long time coming. “Brooklyn is tremendously underserved from a retail perspective,” he tells Real Estate New York. “The national average figure for retail space per individual is somewhere 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 every individual.”

Helping to drive demand, Leary says, is that retailers now have a clearer idea of where to sxcout for locations. “The market has become much more efficient over the last six years, in the sense that firms like ourselves, Marcus & Millichap, CB Richard Ellis, Cushman & Wakefield and Newmark Knight Frank have all entered the outer borough marketplace,” he says. That has made it much more efficient from a standpoint of market information and market knowledge. In previous years, a lot of these retailers may have known the market existed, but I don’t think the information was as good as it is today.”

Leary cites the borough’s population density—2.5 million, the city’s highest—and “the tremendous transit hub that is in place throughout the borough, not just downtown Brooklyn. Any retailer would be able to acknowledge very quickly that there’s an opportunity in that market.”

He notes that national retailers which had previously ignored Brooklyn “have been aggressively pursuing the market. The greatest example of that is Target.” The discounter with a cache of low-price chic initially opened at Atlantic Terminal, then opened a second site at 519 Gateway Dr. and a third at the junction of Flatbush and Nostrand avenues, “and I think their experience in every location has been nothing but stellar numbers.”

Similarly, Leary predicts the newly opened Ikea site will be “one of their most successful sites,” due to the density of Brooklyn’s population, the plenitude of public transportation and the borough’s accessibility by car, thanks to three bridges into Brooklyn. To take advantage of the store’s waterfront location, Ikea established a water taxi for shoppers, “and I wouldn’t be surprised if their usage is higher than the water taxis for commuters.”

There’s another sector of retailing that has tremendous growth potential in the borough, and that’s lodging. “If you go back to the 1950s, there were 4,000 to 5,000 hotel rooms in Brooklyn,” says Leary. “Over the last 20 years, there had been fewer than 500 hotel rooms. Clearly, there’s tremendous demand for moderately-priced rooms with close proximity to the city.”

Some of that demand is locally driven, Leary points out: Brooklyn families who have limited accommodations to put up visiting friends and relatives are looking for hotels to meet their needs. He predicts that the borough’s higher profile as an office center will help spur demand, noting, “There’s currently 17 million sf of office space in Brooklyn.” Cultural institutions such as BAM can bring out-of-towners looking for convenient access to Brooklyn, and Leary cites another potential driver: “one thing people don’t realize is that Brooklyn alone has about 75,000 college students.”

That proliferation of students also has implications for retailers serving a college-age population, Leary points out. “For firms that started in other cities and are looking to penetrate the New York market, accessing the Manhattan market is much more difficult than accessing the Brooklyn market, which really houses the same demographics.”

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