New York City was the last major office market in the country to feel the effects of the national economic slowdown and a number of indicators already point to the market’s quick rebound. While demand for office space throughout the city was lackluster, over the past 2 months there have been signs of increased activity. For many space users, New York City is the most important business center in the world and a key location for their corporate headquarters.
Also, tenants that had the luxury of sitting on the sidelines with a wait-and-see attitude are finally staring to kick the tires once again looking for quality space. In general, companies are shedding their doldrums and doing business again. Many of them now see more space opportunities than 2 or 3 years ago. Today, tenants are in an enviable position where they can negotiate favorable terms for space that best meet their current as well as future real estate space requirements.
The healthcare industry has been one of the most active in terms leasing and buying commercial space. This market sector has traditionally been a strong player, defying economic downturns since people always need healthcare providers. Although this industry is not quite bulletproof, it is less subject to market movements.
Other than some of the financial services companies putting space back on the market, we are not seeing any other major industries giving back space in large blocks. What we are experiencing is the trend of “economies of scale.” For example, a number of accounting firms and law practices are moving to less costly space.
During the first quarter of 2009, the market did have a number of major deals including one of the largest thus far this year; Marcum & Kliegman’s 68,000 square foot lease, which encompasses two floors at 750 Third Avenue. Also, Lehman Merchant Bank committed to 23,000 square feet at 399 Park Avenue.
In terms of vacancy and rental rates, it all depends on location — whether we are looking at Downtown, Garment Center, Plaza District or Midtown South. However, in general net effective rents are 30 percent below the markets’ highs. While it depends on specific submarkets, vacancy rates in Manhattan range anywhere between 10 and 15 percent.
There has been a lot of activity from non-fashion tenants in buildings in the Fashion District. The area offers excellent transportation options including Penn Station, Port Authority, Grand Central Station and all the major subway lines. You can certainly find quality office space in this area for significant savings.
For example, asking rents in Class A office buildings in the Plaza District had climbed to nearly $200 per square foot and now stands at $110 per square foot. Comparable space in a Class B building in the Fashion District is in the $30 to $40 per square foot and there is no longer a stigma attached to being an office tenant in this location as companies are more conscious of their capital expenditures.
Although vacancy has increased slightly, the New York City office market did not experience the same frenzied volume of new construction seen in other big markets around the country, even at the top of the market. As a result, New York City is in a better state with lower availabilities than many of its counterparts. However, the lack of financing has resulted in very little new construction over the past year. Office buildings that had already broken ground prior to the downturn are being completed, although at a slower pace. We are optimistic that the market will quickly thrive again and new development projects will take shape.
As we move forward, the Fashion District is one submarket which people should keep an eye on. This segment of Manhattan did not have the run-up in rents that other areas experienced and as a result is one neighborhood that appeals to a number of diverse businesses from office, to creative services and fashion showrooms.
— Michael Dubin is president of Brokerage Service for Savitt Partners LLC