Tenants who want to sublease their unused office space need to offer the best portions of their locations, not secondary or worn-out corners, if they expect to see it leased in today’s competitive market, a top leasing broker said.
The broker, Peter Turchin, a senior vice president at full-service brokerage CB Richard Ellis, said he was telling clients that subleasing support space on floors without conference rooms or reception areas was nearly impossible.
“You are going to have to compete with that better-built space that is out there. Be prepared to give up the best part of your space for the longest term,” he said.
Turchin gave the sobering report at a panel hosted by the Real Estate Board of New York in their Midtown offices last night.
The other speakers included Glen Weiss, senior vice president at real estate investment trust Vornado Realty Trust; Woody Heller, executive managing director at tenant-representative firm Studley and William Cohen, executive vice president at commercial real estate firm Newmark Knight Frank.
Cohen stressed the difficulty in office leasing today overall, especially in shedding large blocks of space. He said the mean tenant size in New York is about 4,000 square feet, exacerbating the problem of a flood of supply of space with large floorplates that cannot be cut into smaller parcels.
“You can’t take a 40,000-square-foot floor and whack it up in a meaningful way to accommodate a 4,000-foot tenant. There is really very little if any demand for the big space,” he said.
Weiss, a landlord agent, said although activity had improved, the price per square foot would likely drop another 5 percent to 10 percent.
In the weak environment, for example, the REIT is giving rent abatements to select financially strapped, long-term tenants, but demanding the money be repaid over the next year.
“We have only seen a handful of them so far, and no one greater than 7,000 square feet,” Weiss said.
The market for investment sales, down as much as 80 percent in Manhattan according to industry reports, was weak as well, panelists said. Heller from Studley cautioned that brokers should not rely on the claims that people with billions of dollars were waiting on the sideline to snap up distressed properties. He said a recent survey of 112 financial fund advisors who were trying to raise $67 billion found they had come up far short.
“Their aspiration was $67 billion and the actual [money raised] was $27 billion. That is not a good thing,” Heller said.
On the other hand, he added, in recent weeks he was hearing more from individuals looking to buy.
“I have received more of the ‘I got a guy who knows a guy who knows a driver of a guy who thinks he might want to buy a building.’ Those calls are beginning to happen more frequently,” he said.