In late March, before a sort of fatalistic calm had settled on the real estate market – along with the tacit acknowledgement that low rents were here to stay, at least for a while—a joint venture called ZoCo Productions signed an 11,544-square-foot, two year, three-month sublease for prebuilt space at Tishman Speyer’s 30 Rockefeller Center.
While there were some unique elements to the transaction, in its brevity, it was emblematic of a new leasing trend. Business owners’ long-term vision was clouded by the uncertainty in the marketplace, and of their place in that rapidly shifting environment. Nor were they sure how much farther rents would fall. Now, three months on, as a general consensus emerges that the commercial real estate market is nearing some sort of bottom, the scenery is beginning to shift.
Businesses are willing to think in decades.
A few examples: Comverse Technology recently signed a 10-year, 17,320-square-foot lease at SL Green’s 810 Seventh Avenue. Crawford & Co. just signed a 10-year, 10,370-square-foot lease at 55 Broadway. And Bangkok Bank Public Company just signed a 10-year, 9,316-square-foot renewal at 29 Broadway.
“There was a period of time when nobody had any visibility, and the landlords were resistant to lowering their prices. So a logical solution was short-term leases,” said Mark Weiss, a top tenant rep at brokerage Newmark Knight Frank, speaking by phone on Friday afternoon from his Westhampton backyard. “Now, the market has repriced. In this climate, where tenants can rent space for between 40 and 50 percent off the the peak, combined with more visibility in their businesses, they’re generally prepared and comfortable making longer-term commitments.”
Or, as Don Preate, a tenant rep at Cushman & Wakefield, put it, “There isn’t that fear in the marketplace that there was.”
For their part, landlords are less than thrilled about the looming demise of the short-term deal.
“It is the landlords who are pushing for shorter-term leases now,” Mr. Weiss said. “There’s a perception that we’re in a trough in the marketplace and they just want to get through it, maintain cash flow as best they can, and keep leases short so that upon expiration they can charge more.”
But, as they say, beggers can’t be choosers.
None of this is to say that the short-term-lease trend is definitively over (we won’t be ringing that death knell for a while yet).
“You’ve definitely seen a couple of more long-term transactions being done,” said Greg Wang, who, along with First Service Williams’ Brian Given, represented ZoCo in the 30 Rock deal. “[But] there’s still a little bit of a question out there of where the market’s going to be in a couple of months.”
That said, it does look like the age of the short-term lease is entering its twilight years.