Brokers who represent buildings are laying out the red carpet for prospective tenants — no matter their size.
Earlier this year, Nicholas Gilman of Byrnam Wood was representing a 4,000-square-foot tenant seeking a five-year lease in a Class A building in Midtown.
He recalls that in the past after a tour, he would be lucky to get a follow-up call from the building. But this time around things were different.
His tenant became a desirable prize that was coveted by two different properties. “They fought over the tenant,” Gilman says, incredulous. “They wouldn’t stop calling.”
The tenant was showered with offers of discounted swing space so it could be in the same building during the time the new space was being built to suit. And there were longer and longer periods of free rent.
The final deal provided for a temporary space that was a brand new, and larger, prebuilt on a higher floor at half its asking rent that was “cheaper than Regus,” along with five months of free rent from the day the tenant moves into its main digs — a month per year of the lease — and a final rent that was $7 per square foot lower than the initial offer.
“It really reflects a change in psychology,” Gilman says. “It’s a strange and stark contrast to six months ago when you couldn’t get a call back.”
According to Vicus Partners, each year, 58 percent of Manhattan tenants lease fewer than 5,000 square feet, while 68 percent lease fewer than 10,000 square feet.
Brokers are being aggressive to win every deal because today’s tenants — no matter their size — are simply taking less space to do their business. Even if they are expanding, they are taking less than they would have in the past.
“The densification trend has continued over two decades, and people are working more collaboratively,” explains Woody Heller, head of capital markets at Savills Studley. “When people are working more densely and taking less space … it has an effect on the fundamentals.”
There is also a growing amount of space available at both redeveloped buildings and buildings new to the market — which is increasing the competition.
SL Green Realty has calculated that 24 million square feet are coming to market, albeit some won’t be ready for more than five years. Since buildings are off the market while under construction or undergoing upgrades, the actual increase to the market will be about 2.6 million square feet per year.
But even if the tenants lease 250 square feet per person — and most now lease less — SLG thinks it will take 10,400 new jobs just to stay even with vacancy.
