October 30, 2009

It was the best of times; it was the worst of times. Dickens said it as he was looking for office space.

“The market in New York hasn’t hit bottom yet,” explained Bob Stella, Executive Vice President & Principal at Cresa Partners. (www.cresapartners.com) “We believe that will occur in late first or early second quarter of next year. This drop began nearly 18 months ago.  It picked up speed after the Lehman collapse. Whereas top rents were $200 psf in class A space, they now can had for $80. Then, B and C space began to feel the impact. In major markets, you’re seeing concessions offered upfront to attract tenants.”

“How leases are structured in terms of flexibility is another factor,” said Stella. “If you are taking 4,000-7,000 psf  of space, you can walk into a pre-built unit and sign a short or long term deal. In some cases, you can also relocate  within a landlord’s portfolio if you need to expand.”

Bob Stella has these tips for small businesses looking for space and what landlords require:

Look for a sublease? Subleases are discounted anywhere from 15-25%. Plus, you get turnkey space, possibe furniture and a phone system already in place. Six months security deposit is usually the norm.

Also, be prepared for the landlord to ask, “How are you funded,” “Do you have a business plan,” and “Who are the people running your firm?”

A report by Cushman & Wakefield said sublease space has been more heavily discounted over the past year.  The average asking rent for sublease space at the end of the third quarter was $49.54 per square foot, a 27.7 percent or $19.04 year-over-year decline from $68.58 at this time last year. The report also points out that tenants who were previously weighing their options, or extending their current leases for a short term, are starting to make long-term decisions to lock in leases at rental rates that haven’t been seen in several years.

 (source- Cushman & Wakefield  www.cushwake.com )

Major market office rents from 2nd quarter to 3rd quarter-2009

San Jose                    ($23.95)              5.0%

New York City          ($47.16)              4.4%

Seattle                       ($24.47)              3.5%

San Francisco           ($30.14)              3.5 %

Denver                      ($17.06)              3.2 %

Oakland                    ($20.54)              3.2 %

Nashville                  ($15.52)              3.2 %

Tampa                       ($17.52)              3.2  %

Orange County        ($21.53)              3.1 %

San Diego               ($23.80)               2.9 %

Source: Reis Inc. (www.reis.com )