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As seen in
April 11, 2001
Concerns raised about sublet glut
by ELAINE MISONZBNIK
It's not time
to worry yet. Yet.
At least that's what the experts are saying about the large
amount of sublease space that has come on the market recently.
Everyone agrees that the leasing frenzy
that took place in the first months of 2000 has created a considerable
surplus in the aftermath of a slowing economy, but according
to Tim Kucha, director of Plymouth Partners Ltd., a tenant representation
firm, "It's still a very tight market. It's really just a fraction
of a 400 million SF marketplace."
That is not to say that the impact has not been significant.
According to Kucha, the surplus space
constitutes about 1 million SF in New York City alone, offering
rents about 10 - 15% below market rates.
To keep up, landlords have had to develop greater flexibility,
granting more concessions and providing better lease packages.
"Where you see the impact is not so much in the rents but
in the concessions from landlords, escalation packages, free
rents, those are some of the areas where you are starting to
see more flexibility," says Alan Desino, senior managing director
at Insignia/ESG. "But as part of the increasing supply in the
marketplace, the prices had gone down a little bit too."
The most affected areas so far are
those that have been popular with the dot-com tenants. "I think
that the buildings that have been set up to accommodate technology
companies are the ones that are having troubles at this point,"
says Kucha's colleague, James Meiskin. "The area that has been
probably the most affected is Silicon Alley."
But corporate relocations and consolidations played their part
too. "Some of the larger financial institutions are now feeling
the impact of a slowing economy and giving up a portion of their
space," says Kucha. "Right now, we are looking at a firm that
wants to dispose of an entire 73,000 SF floor at One Hudson
Square."
"Part of the situation is that quite a few companies took more
space than they needed last year, anticipating future growth,"
Desino agrees, "But you haven't really seen enough of space
from financial institutions. There is a fair amount of sublease
space from dot-coms - in Midtown South and especially the Far
West Side. But as far as the financial firms are concerned,
no significant blocks of space really came on the market."
Desino maintains an optimistic outlook in general. "I think
the first quarter of the season has been artificially slow,"
he notes. "Tenants who had been able to wait to move waited.
But eventually, those people who had delayed making a decision
are going to be forced to do it and that is going to pick up
demand a little bit."
"The sublease space is giving the tenants more leverage, more
options to choose from, whereas six months ago they did not
have these options," Kucha concludes. "And rents across the
board have begun to flatten. But it's still a very tight market."
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