The Manhattan office space market has increasingly come to resemble the 1999 film Office Space, with rumors of impending layoffs, nervous employees, and frustrated brokers taking copy machines to empty fields and viciously assaulting them with baseball bats.
O.K., that last part isn’t true. But still, this summer has been a bummer! In July, Manhattan’s overall office vacancy rate hit 7.3 percent, according to Cushman & Wakefield. Same time last year, it was 5.8 percent. Asking rents have continued to creep up, but the numbers have been rendered essentially meaningless by a bonanza of concessions from landlords. (You take this space, I’ll give you one year’s free rent and dinner for two at the Four Seasons!)
At the end of July, Colliers ABR’s Robert Sammons—unafraid to look the fearsome ogre in the eye—predicted the vacancy rate would rise to 10.7 percent by year’s end.
And let’s not even talk about investment sales! Well, actually, let’s. Peter DeCheser, managing director of the capital markets group for Jones Lang LaSalle, is keeping his own month-to-month tally and estimated that “from July 1 to date, we are down about 85 percent compared to last summer.”
It stands repeating that whenever brokers (who, as children, have their eyeballs implanted with rose-colored lenses) bemoan the state of the market, well, it must really be bad.
“At the beginning of the year, there was a sense that the market would weaken,” said Ken McCarthy, managing director of New York area research at Cushman & Wakefield. “Now it appears that the long anticipated slowdown is occurring.”
Mr. DeCheser had one word for the summer: “slow.” He anticipates that the industry will keep pace with the seasons, further sinking as the Northern Hemisphere tilts away from the sun and falls into its annual hibernation. “Third quarter is going to shape up to be the slowest of all the quarters this year,” he said.
Mr. McCarthy has a slightly different view, predicting that the stalemate that has paralyzed deal makers—with landlords refusing to lower asking prices and tenants waiting for the market to bottom out—will finally end, and deals will get done.
“As we start to see things decline, then we’ll see more tenants ready to move, and the landlords will also start to move to lock in high-quality tenants,” he said.
Mark Weiss, executive vice president and principal at Newmark Knight Frank, had a similar take: “There is going to be a fair amount of activity in September; decisions will be made, handshakes will be exchanged, because people will stop putting off decisions.
“That’s not to say the market is going to get better,” he cautioned. “It will be the result of pent-up activity, but it will be a welcome change.”