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OFFICE SPACE MARKET GETS WORSE

07/10/2008


This article in yesterday’s CRAIN’S NEW YORK BUSINESS seems to predict tough times for the NYC commercial leasing marketplace.

I would argue to the contrary. Prices for quality space in midtown will not drop unless (and until) the recession worsens. Since there is very little new office space being built, any temporary lull in pricing should be pounced on immediately by space hungry tenants. This lull is not bound to last long with the current low level of new development projects in the commercial sector.

Tenant options are a little bit better in the fringe areas, such as downtown Manhattan, lower midtown, and the far west side. Those areas will see more significant reductions as this recession deepens.

THE PRICE OF A BARREL OF OIL


On another note, in conversations with business people across the state, it seems that no one can understand why President Bush is doing nothing to forestall the ever increasing price of a barrel of oil. When oil hit $100 a barrel, we thought that it couldn’t go higher. The price of oil has hit $140 per barrel and, believe it or not, there are still those who say the price will not go much higher. I am afraid that without government intervention the price of oil will continue to increase, choking our economy and causing the recession to expand to every major sector. -- Edward E. Klein

Office Market Gets Worse in Manhattan
Theresa Agovino
Crain's New York Business


http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20080709/FREE/662816795&SearchID=73323357633728

The amount of available office space in Manhattan increased to 9% in the first half of the year compared with the first half of 2007—as leasing activity slowed amid a downturn in the economy, according to a new report by CB Richard Ellis Inc. The rate is the highest level since 2005.

The report echoed findings in a study released last week by Cushman & Wakefield Inc., which also suggested a weakening commercial office market.

During the first six months of the year, CB Richard Ellis found that leasing activity dropped 13% to 10.5 million square feet from a year earlier when the availability rate was 8.1%.

Landlords are clearly becoming more flexible. The report found landlords in midtown and midtown south received the rent they were requesting 92% of the time, down from 95% a year earlier.

However, rents still managed to increase 12% to $71.35 a square foot from the year-ago period, largely driven by the historically high level of deals in which rent topped more than $100 a square foot. The number of such deals hit 47 in the first half of the year, up 24% from a year earlier. There were only 48 leases with rents of $100 a square foot or more in all of 2006.

An avalanche of sublease space could push rents lower because it is typically cheaper than space leased directly from a landlord. Sublease rents are now $7 a square foot less than direct rents, a significant difference, according to Howard Fiddle, a vice chairman at CB Richard Ellis.

Right now, the brokerage firm said that there is 7.1 million square feet of sublease space available, 22% of the total space. Mr. Fiddle says sublease space would have to account for around 40% of the total for it to have a major impact on rents.

One factor propping up the market is that the financial firms that have been hard hit by the economy haven’t been dumping space at a level commensurate with their lay-offs. According to CB Richard Ellis, eight financial firms have laid off a total of 20,000 people in New York City but so far they have dumped only 1.4 million square feet of space. CB Richard Ellis vice chairman David Maurer-Hollaender said that standard industry benchmarks would suggest that the firms with that level of layoffs would be relinquishing closer to 4 million\s square feet.

“There is a hesitancy to get rid of good space,” says Mr. Maurer-Hollaender. “Typically you succeed at getting rid of space just before you need it again.”

Copyright Crain's New York Business 2008



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