The dapper Dr. Chandan (barbershop-striped tie, monogrammed French-cuffed shirt) was speaking to six tables of real estate executives during a Monday afternoon National Realty Club luncheon at the Williams Club. The striped curtains behind him opened onto the drab, rust-colored bricks of the neighboring buildings.
Though his near-term prognostications are dire, Dr. Chandan warned against what he calls “headline risk,” which translates roughly into the media overstating the problem and potentially contributing to a “negative price bubble,” in which commercial property values actually fall below their fundamentals.
After all, he said, the New York City market has one distinct advantage: “We haven’t seen a lot of development activity over the last four or five years.”
CB Richard Ellis agrees, pointing out that only four new big office buildings are scheduled for completion over the next four years: “200 West Street (1.9 msf), 11 Times Square (1.1 msf); 250 West 55th Street (800,000 sf), and 510 Madison Avenue (330,000 sf).”
And while the market continues to deteriorate, as of Dec. 1, it had still yet to reach the post-dot-com levels of 2003, when the sublease space totaled 14.8 million square feet.
EVEN SO, the nagging question remains: Who will pick up the slack of Manhattan’s three driving office tenants?
“There is a real conundrum,” said Robert Freedman, executive chairman of Williams Real Estate, a First Service Company. “It’s not like there are pat, simplistic answers. This is so fundamental that a lot of people just say we’ll work through it, we’ve done it before, we don’t exactly know how. … I am more and more convinced it is through what will be a new … sector of the economy, which is sustainability.”
Others, like Mr. Fiddle of CBRE, believe that the tenant base will remain the same, if in a slightly altered form: “We don’t necessarily think the [financial services] industry will go away. Certainly, companies will go away. But if we fast-forward a few years, a lot of new firms will form.”
Mr. Fiddle pointed out that while financial firms are the biggest contributors to the sublease pool, they’re also sopping up some sublease space. In recent months, financial firms have signed 44 leases for sublease space, in contrast to the second biggest taker, law firms, which have signed 20. But, tellingly, the 44 deals comprised only 9,850 square feet, compared to the law firms’ 24,300 square feet. In other words, the new financial firms appear to be small.
Yet, Cushman & Wakefield executive vice president Dale Schlather said that those smaller firms will certainly grow with time.
“I think all these guys getting laid off, they’re plenty smart and they shouldn’t really be laid off, but the world is what is it,” he said. “They’re not going to give up, and with the Goldman Sachses and Morgan Stanleys turning into banks, I think you’ll see a lot more smaller boutique investment advisory companies that will be fee-driven, not equity-driven. They’ll be smaller firms, and then [they] will get bigger.”
drubinstein@observer.com
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