In another sign that the fight for tenants is getting fierce, Manhattan companies that provide temporary office space are going head to head with firms looking for tenants to sublease conventional space, and are lowering rents to beat out the competition.
Unlike offices on the direct market, which typically require a 10-year
lease, offices that can be subleased are often smaller, may come fully
furnished and offer shorter and more flexible terms, similar to what
temporary offices provide.
“The sublease office market has put pressure on us to bring down rents,” said Hayim Grant, president of Corporate Suites Business Centers, which provides temporary office space. “Certainly we’re trying to be creative to assist businesses.”
Since the start of September, nearly 3 million square feet of sublease office
space was added to the Manhattan market, primarily by
financial services firms, said Richard Persichetti, client services
manager with Grubb & Ellis.
Corporate Suites Business Centers, which requires tenants to rent temporary office space for a minimum of three months, maintains seven centers in Class A and Class B buildings, including one in 757 Third Avenue, at 47th Street, open since January. The center features 67 office suites with windows offering views of Midtown.
Among other deals, Corporate Suites is offering a free month’s rent to tenants who sign a 12-month lease, which includes office space, kitchen and reception areas, office furnishings, conference rooms, technology support, Internet access and other support services.
Since October, rents charged by business centers — which offer temporary office spaces — have been cut 15 to 25 percent, said D. Edward Bungert, the president of the Office Business Center Association of New York, who is also vice president of World-Wide Business Centres. Price cutting “is not across the board to a serious degree but it’s across the board to some degree,” he said.
New York City has about 65 business centers run by 22 companies, said Bungert, although they are not the only ones who provide temporary office space. The centers offer 1.5 million square feet of office space that tenants lease for months or sometimes years at a time.
For $1,500 to $2,500 a month, a company can lease a 90- to 150-square-foot furnished temporary office, including use of areas shared with other tenants, like conference rooms, reception areas, utility closets, bathrooms and kitchens, which could add up to an additional 800 square feet, said Bungert of Office Business Center Association of New York, which represents companies that provide temporary, ready-to-use offices.
In comparison, sublease space in Manhattan runs an average of $51 per square foot.
Bevmax Office Centers, whose clients include professionals from the financial services sector, is offering rent discounts to newcomers at its fifth location, a Class A office building at 880 Third Avenue, which opened in November and is 40 percent occupied. While Bevmax clients are required to commit to a six-month lease, many end up keeping their temporary offices for a few years, said Rick Feld, the company president.
“We started feeling competition from the sublease market in the last two to three months,” Feld said. In response, he added, “we’ve been reducing our prices.”
Grant from Corporate Suites is a little more optimistic about 2009. He said demand for space picked up in January after a slump that started in September. He’s seeing more interest from firms trying to get out of existing leases and looking for smaller spaces with flexible terms. He thinks 2009 will bring a surge in start-ups, which are prime candidates for short-term office space.