Along the same lines, in many of the much heralded new leases that have been signed, tenants traded larger spaces for smaller ones, creating a net loss for New York City landlords.
Law firm Holland & Knight, when it moved from downtown to midtown’s 31 West 52nd Street, relocated from a 105,000-square-foot office to an 83,000-square-foot one, according to two industry sources. And German Bank West LB, in its much lauded relocation to 7 World Trade Center, exchanged 165,000 square feet for 129,000 square feet.
And just think of all the shadow space that has yet to officially be included in the vacancy rate statistics—like the 1 million–square–foot 11 Times Square, or the hundreds of thousands of feet downtown that Goldman Sachs will vacate for its new headquarters.
WHAT DOES ALL THIS MEAN? The counter-narrative would say that until the job market recovers, and serious hiring begins in the financial, legal and media industries—the trifecta supporting the New York real estate market—the office market will stagnate.
“You still have a period of time that will pass before we have created a sufficient number of jobs to motivate demand for space,” said Sam Chandan, president and chief economist at Real Estate Econometrics. “As a benchmark, the last recession ended in November 2001. The vacancy rate in the office sector didn’t peak till late 2003, two years later, and it took a number of years after occupancy rates had stabilized for occupancy rates to rise enough that it finally motivated meaningful increases in rents and net operating income. It’s not a short lag.”
And as the market stagnates, tenants will have every reason to dither.
“We sit in our meetings and talk about all this deal flow that’s in the pipelines,” said Dale Schlather, executive vice president at Cushman & Wakefield. “People are getting hired for new things every day, and yet at the same time, you’re not hearing about a lot of closed deals.”
“My feeling is, it’s just kind of a general fear out there in the market,” Mr. Schlather said. “I don’t think it’s a real-estate–driven issue. I think it’s more of an economy-driven issue. It’s a fear that seems to have crept into the general conversation.”