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Thoughts on the Market - 2008
Originally posted at http://bglobal.ning.com/profiles/blogs/2400286:BlogPost:101 on October 19, 2008
Almost every customer we talk to is curious about the direction of the market leasing rate of available office space in Manhattan. Since we primarily represent tenant, we prefer the rent to go down to a more reasonable level and we can negotiate more attractive package for our customers in all transactions. What is really going to happen to the office leasing market in Manhattan? By the way, the lease on our own office at 303 Fifth Ave is going to expire in June, 2009. Do you think it's good timing?
I don't have a crystal ball. Here are some data I have that help us to predict:
* From August 2003 to May 2008, Manhattan overall average asking rent increased 83% from $36.59/sf to $67.06/sf. The actual rent increase is more than 83% because these two reasons:
1. The loss factor (email me if you need an explanation at owu@berkeleyglobal.com) has increased in most buildings we visited with potential tenants in the last two years.
2. The concession package which usually include work letter or free rent have been smaller across the board during the last couple of years compared to 2003 and 2004.
* Net loss of office space in Manhattan: 15 million sf lost in 9/11 event in 2001. Another 15 million sf lost due to residential conversion. There is only 3.4 million sf new space due to come online in 2009. The net loss of office space is a factor in recent rent hike.
* The local economy has been weakening before the Oct stock market crash. The collapses and M&A activities in financial services industry will continue even with the bailout package in place. The city comptroller's office now projects the city could lose as many as 165,000 jobs over the next two years. It includes the prediction that as many as 35,000 could be lost in the financial services industry, out of a total of 85,000. This means that the high end Class A building vacancy rate will take a hike and rental rate will come down.
* A friend this week told me this: When New Yorkers get laid off from high paying banking jobs, a lot of them will start their own businesses and some of them will become quite successful at it because that's what happened during the last recession. If this is true, that means the small spaces (500sf - 5000sf) in Class C buildings will still be in demand.
* We notice a significant trend in recent assignments: Successful companies are looking for smaller size or less expensive locations in new office space search as a measure to stay viable in a changing economic environment.
Almost every customer we talk to is curious about the direction of the market leasing rate of available office space in Manhattan. Since we primarily represent tenant, we prefer the rent to go down to a more reasonable level and we can negotiate more attractive package for our customers in all transactions. What is really going to happen to the office leasing market in Manhattan? By the way, the lease on our own office at 303 Fifth Ave is going to expire in June, 2009. Do you think it's good timing?
I don't have a crystal ball. Here are some data I have that help us to predict:
* From August 2003 to May 2008, Manhattan overall average asking rent increased 83% from $36.59/sf to $67.06/sf. The actual rent increase is more than 83% because these two reasons:
1. The loss factor (email me if you need an explanation at owu@berkeleyglobal.com) has increased in most buildings we visited with potential tenants in the last two years.
2. The concession package which usually include work letter or free rent have been smaller across the board during the last couple of years compared to 2003 and 2004.
* Net loss of office space in Manhattan: 15 million sf lost in 9/11 event in 2001. Another 15 million sf lost due to residential conversion. There is only 3.4 million sf new space due to come online in 2009. The net loss of office space is a factor in recent rent hike.
* The local economy has been weakening before the Oct stock market crash. The collapses and M&A activities in financial services industry will continue even with the bailout package in place. The city comptroller's office now projects the city could lose as many as 165,000 jobs over the next two years. It includes the prediction that as many as 35,000 could be lost in the financial services industry, out of a total of 85,000. This means that the high end Class A building vacancy rate will take a hike and rental rate will come down.
* A friend this week told me this: When New Yorkers get laid off from high paying banking jobs, a lot of them will start their own businesses and some of them will become quite successful at it because that's what happened during the last recession. If this is true, that means the small spaces (500sf - 5000sf) in Class C buildings will still be in demand.
* We notice a significant trend in recent assignments: Successful companies are looking for smaller size or less expensive locations in new office space search as a measure to stay viable in a changing economic environment.
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