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WHEN WILL THE MARKET RATES BOTTOM OUT?

08/20/2008


It appears that the “bloom is off the rose”. The predicted softening in the commercial leasing market for New York City has begun. The much anticipated decline in the sky high rental rates throughout the 5 boroughs has begun.

CRAIN’S NEW YORK BUSINESS has analyzed this phenomena from the perspective of the large office user (“Big Blocks of Space Go Begging” ). The much greater availability for the large users is only the “tip of the iceberg”. Many small and mid-size tenants will be benefitting from the return of leasing rates to planet earth.

You may ask, is this good or bad for New York? The unqualified answer is that it is generally beneficial for most New Yorkers.

· More tenants will be able to afford space in the central business districts. They will eventually return equilibrium to the market.

· Additional development will continue to come on-line in currently fringe areas such as the West Side Rail Yards, in order to accommodate the next wave of business expansion in New York City (remember it takes 5 to 7 years to develop virtually anything in New York City).

· From a tenant’s perspective, the balance of power between landlords and tenants will be more even handed than it has been since the mid-1990s. (This has already shown up in all sorts of lease negotiations we have conducted recently where tenants are asking for both legal and business concessions we have not seen in many years.

When will the market rates for commercial space bottom out? Figure late 2009 to mid-2010. That is, of course, presuming that no further catastrophes occur in our financial and general marketplaces.

It will be a wild ride for as long as the market gyration continues. --Edward E. Klein

P.S. I have been receiving a great deal of junk mail from Landauction, and other companies relating to public land sales. It is important to note that this is the first time we have seen such widespread public property auctions since the 1987-1993 real estate crash.


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