Calm down! That was the message CB Richard Ellis honchos impressed upon reporters at this morning’s end-of-third-quarter breakfast, at which the brokerage released a “Supply & Demand Special Report.”
“Everybody’s knee-jerk reaction this month has been wrong,” said Simon Wasserberger, senior vice president of CBRE’s New York tri-state region consulting group, referring to predictions that the demise of Lehman and other banks would dump massive amounts of sublease space on the market, causing big vacancy rate increases and sizable rent declines. “People underestimate the stability of Manhattan rents.”
Mr. Wasserberger went on to argue that Manhattan is incredibly supply constrained. At most, there will be 7 million feet of new construction in the next four years, which, in addition to whatever sublease space comes on the market, will comprise merely a drop in the bucket that is New York’s 400 million-square-foot marketplace.
Moreover, Mr. Wasserberger expects that a lot of firms will hold onto their excess space rather than sublet it, like they did last time the market went sour. They’ve learned the lesson that it’s better to hold on to already leased space than have to go search for new space (and pay higher rents) in a couple years’ time, when the market improves.
Mr. Wasserberger said that the worst-case-scenario, which he seems to consider unlikely, is job losses of more than 140,000, which would cause the vacancy rate to rise to just 12.5 percent by 2011 — that’s a tenant’s market, but hardly apocalyptic. In that worst-case-scenario, rents would decline by 26 percent by 2011.
“The perception is this market is dead and dying, and that’s not true,” agreed Stephen Siegel, CBRE’s Chairman of Global Brokerage, who remarked that the supply is even further constrained by developers unable to secure credit for new projects not already in the pipeline.
“There are still deals being signed at numbers that will boggle your mind,” Mr. Siegel said.