Market playing wait-and-see

The first quarter leasing numbers were down around the country, with millions of square feet of office space being dumped on the market. The negative absorption is mostly due to business failures and downsizing, particularly in the technology sector but, with other types of businesses also feeling the economic slump and adding space to the market.

In Manhattan, the office market has clearly seen a slowdown with many businesses holding off on leasing deals, waiting to see what the economy will bring in the coming months. A tremendous amount of sublease space came onto the market in both downtown and midtown, causing asking and effective rents in New York City to come down and concession packages to move up throughout all property classes.

Rents have declined between 5 and 10 percent per foot, making those $95 - $100 per SF leasing deals a thing of past, and workletters have risen to $30 to $35 per SF. Landlords and brokers are calling with offers of a available space for the first time in a long time, a sure sign that the bidding wars for space we saw a few months ago are no longer happening.

The overall midtown vacancy rate, which hovered around 1.9 percent throughout most of 2001, is now at 3.6 percent. The downtown vacancy rate increased to 3.3 percent during the first quarter of 2001 from 3 percent during the fourth quarter of 2000.

We can expect further decline in the demand for office space as the uncertainty on Wall Street has many prospective tenants adopting a wait-and-see attitude.

However, the falloff in the market creates opportunity for tenants to find space in submarkets that had no space just a few months ago and at more reasonable rents.

COPYRIGHT 2001 Hagedorn Publication
COPYRIGHT 2001 Gale Group