Michael Stoler, former columnist for the New York Sun, is joining The Real Deal as a columnist for the magazine and a regular contributor to the Web site. Stoler is host of the real estate TV program “The Stoler Report,” on CUNY TV. His radio show, “The Stoler Report,” covering real estate trends in the tri-state region, airs on 1010 WINS on Saturdays and Sundays. He is an adjunct professor at NYU Real Estate Institute. Also, Stoler is a senior principal at international real estate fund manager Apollo Real Estate Advisors.
Crumbling office market means better times ahead for tenants
The crisis in the credit and stock markets has made it more difficult to run a business, causing many tenants to rethink their space needs, which in turn is affecting office leasing in Manhattan.
According to a Manhattan Newmark Knight Frank report, market conditions in the borough continued to deteriorate in September with over 1.6 million square feet of space added back to the market throughout the month. Year to date, net absorption now totals 4.8 million square feet.
The added space pushed the availability rate up to 9.7 percent, compared to last year’s 8.1 percent.
Additional space may be reaching the market with the loss of jobs at Lehman Brothers and the consolidation of the operations of AIG, Merrill Lynch and Bank of America.
At a recent investor meeting, Boston Properties announced that 120,000 square feet of office space at its Times Square building will be returned to the company due to the recent closing of the law firm of Heller Ehrman. The company is unclear what will happen to the roughly 440,000 square feet of office space occupied by Lehman Brothers at 399 Park Avenue. The space is currently occupied by the investment management group and some employees from [investment advisory firm] Neuberger Berman.
At the meeting, Boston Properties officially announced that it will be rebranding the legendary Citigroup Center to be known as 601 Lexington Avenue. Even in the midst of the economic turmoil, the company announced that tenants continue to be interested in leasing space at the General Motors building with rents at $200 per square foot.
Meanwhile, Cushman & Wakefield’s third-quarter report for the Manhattan commercial real estate market showed that the overall vacancy rate has hit a two-year high rising to 7.4 percent. The COO of Cushman & Wakefield’s New York metropolitan region, Joseph Harbert, said: “The top of the market has been reached and now we’re beginning to soften. We’re coming down from historic highs, but the question remains, how far will we fall.”
Overall leasing activity slowed significantly in the quarter, resulting in a year-to-date leasing drop of 14.3 percent from this time last year, the lowest leasing activity year-to-date since 2003.
Deals are still getting done, but they are taking much longer to complete. The market is trending towards a tenant market, allowing tenants to negotiate on terms and conditions. It’s a changed situation: Tenants now have the opportunity to quality for better space at more attractive rents, and to acquire increased periods of free rent, higher work letters for tenant improvements and shorter term leases.