The shift to a tenant's market

The balance of power in the commercial real estate market is a swinging pendulum, with control constantly shifting between landlord and tenant. Currently, the market is swinging away from landlords and in favor of tenants, allowing patient, creative companies to benefit.

During the frenzy of the dot-corn era, landlords controlled the "hot" market and creative companies -- which include design, architecture, engineers, and media firms -- were not even being considered. Rather, many landlords were willing to take a risk with young entrepreneurs backed by deep-pocketed investors willing to pay exorbitant rents, cough up two years of a security deposit and invest millions of dollars in the space to build out high-end office installations. Often the landlords could even obtain some kind of stock option, or small equity position in the company. It was a landlord's dream!

But by the end of 2001, the market shifted, and although landlords were left with security deposits and high-quality build-outs, they still had an abundant amount of empty office space on the market.

Asking rents in SoHo had climbed upward to $50 per SF, but are now only in the mid-$30's per SF. Flatiron rents are now down to the low $20's from the high $30's. Office space in Chelsea and the West Side is only in the mid-teens.

Companies interested in relocating to Downtown are now able to find rents in the mid-20's per SF, even before applying the tax abatements associated with the World Trade Center Recovery Plan, plus the original tax incentives from the Downtown Revitalization Plan of the late 1990's. This can sometimes mean more than a 50% reduction in the base rent. Also in the Downtown area, it is common for the landlord to build-out a finished space for the tenant, or to provide a substantial work letter.

Research and consulting firm, BlueSentinel, relocated from 304 Park Avenue South to 90 William St., where the asking rent was only in the mid-$20s. In the Sinvin-brokered deal, not only was BlueSentinel able to take advantage of the downtown incentives, the company also moved into a built-out space, featuring three offices and a conference room with solid doors, and a large built-in kitchen with granite countertops.

The shift to a tenant's market provides new opportunities for creative companies who can take advantage of falling rent prices, improved spaces and wiser landlords. Brokers finally have enough product to show their clients multiple spaces, and great locations at low prices not seen in, years.

COPYRIGHT 2002 Hagedorn Publication
COPYRIGHT 2003 Gale Group