Space for most tenants should be a cinch to find as some 24 million square feet join the market over the next five years. While job growth is steady, there still may not be enough bodies to fill all that empty space, let alone the rehabbed buildings also trying to lure tenants to Brooklyn and Queens.
“The near future overriding ‘news’ is a net addition of 3.8 million square feet of available space that was added over the past 12 months,” says Robert Shapiro of Newmark Grubb Knight Frank.
According to Newmark, 10 of the past 12 months have resulted in negative absorption, while availability at the end of April has risen to 12.8 percent from this time last year. Manhattan asking rents were stable at $76.20 a foot.
Leasing activity in April included a 98,000-square-foot lease by Deloitte at 1221 Sixth Ave. MAC Cosmetics will also move to 86,000 square feet at Soho Square’s 233 Spring St. while Sailthru took 27,320 square feet at One World Trade Center.
Not only will more high-tech space be coming to market but older buildings, like the warehouses in the outer boroughs, along with older office stock, will be getting makeovers designed to entice tenants and their millennial employees.
This will provide companies the ability to make a “flight to quality,” as asking rents may be steady but concession packages will rise, lowering the cost to lease better offices.
“I’m telling the [owners], ‘We don’t want to lose this tenant,’ and we are seeing the concession packages creep up,” says Arthur Mirante, tri-state president of Avison Young.
“The asking rent is remaining the same, but the net-effective returns have begun to decline. We are adding a lot of space in Manhattan in the next three years, and I don’t think employee growth will keep up.”
So far, Peter Riguardi, tri-state president of JLL, doesn’t think rents will increase but says they will remain in the same general range. That said, he agrees that owner contributions to tenant improvement work is “way up” and negotiations will start sooner and take longer.
“There is no question: A good representative makes a difference on both sides,” adds Riguardi.
Because the market is getting highly competitive, Kaufman Organization principal Grant Greenspan agrees the net-effective rents are changing. “You are seeing concession packages going up, and that is where the adjustment is taking place,” Greenspan says.
But Greenspan believes many tenants are doing well and would also expand if they had more clarity on future taxes and health care. “It could turn around on a dime,” he says. “It’s more psychological than the fundamentals.”
Since corporate America is implementing a new, leaner workplace strategy and doing more with less of a footprint, there is still a note of caution, advises Bruce Mosler, head of global services at Cushman & Wakefield.
Nevertheless, he says there is optimism in the corporate sector over deregulation and job growth. “For seven years running, New York has outpaced the US for job growth,” Mosler explains.
“We are looking at extending this cycle, and while nobody knows for how long, in particular in the financial-service sector, it bodes well for New York.”
