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As seen in
August 21, 2002
Commercial Real Estate
Price Swings 'Enormous' in Deals for Office Space
by SANA SIWOLOP
As many seekers of Manhattan office space
have discovered lately, this is a good time for deal making.
With demand still weak in many parts of the borough, landlords
are continuing to offer everything from a few months of free
rent to double commissions for brokers.
Lately, some real estate brokers say they have noticed landlords
even offering rents at signing that are sharply discounted from
the asking rents that typically open most negotiations.
At other times when the Manhattan office economy has been less
than robust, the difference between asking rents and signing
rents was typically 5 to 10 percent, brokers say. But some brokers
also think that, publicly at least, Manhattan landlords used
to adjust their asking rents at a faster clip than they have
in the current slowdown.
Now, the adjustments are starting to come in, says David N.
Lebenstein, director of commercial sales and leasing at Time
Equities, a real estate services company based in Manhattan.
Yet even when landlords are not publicly willing to lower their
asking prices, many are willing to come down from those prices
rapidly, frequently in the range of 25 to 30 percent, and sometimes
as much as 60 percent for property that is being sublet, particularly
in Lower Manhattan, according to Mr. Lebenstein and Suzanne
Sunshine, a sales associate at his company.
"The swings are enormous," said Mr. Lebenstein, who represents
tenants. "If a building had been asking $35 to $40 a square
feet, in many cases people will sort of whisper to you that
for the right deal they'll do $30 a square foot, or in some
cases, $25 a square foot."
Both Mr. Lebenstein and Ms. Sunshine cautioned that the biggest
discounting is appearing primarily for office space in Lower
Manhattan and in areas like Chelsea and Clinton, rather than
in Midtown. The discounting also seems to depend, they add,
on factors including the quality of the building, its vacancy
rate and the financial strength of its landlord. Both brokers
say that they began noticing the drops sometime around May and
that they are seeing more and more flexibility, by both landlords
and their representatives.
Ms. Sunshine cited one recent sublet deal in which she was able
to obtain 1,350 square feet of space with "gorgeous" views at
15 East 26th Street for two fund-raising groups that work for
Senator Hillary Clinton. Ms. Sunshine said her tenants got the
space at a price that was about 25 percent less than the asking
price of $38 a square foot.
As another example, Ms. Sunshine cited the 1,500 square feet
of prime space with "great" views that she was able to obtain
for a consulting group at the landmark Woolworth Building two
weeks ago, at a price of $27.50 a square foot. A year ago, she
said, asking rents in the Woolworth building were in the range
of $40 a square foot.
David L. Levy, a principal at Adams & Company, another real
estate services firm in Manhattan, has also noticed that some
Manhattan office landlords are offering signing rents that are
as much as 25 percent below asking rents. But he says the discounting
is being offered primarily to tenants who have strong business
and credit records, and by landlords who also have strong financial
positions, perhaps because they are not carrying large mortgages
on those properties.
He cited one potential tenant, an architecture firm, that his
company, which represents both landlords and tenants, is now
considering for 6,400 square feet of loft space with multiple
windows at a building that Adams owns at 48 West 37th Street.
According to Mr. Levy, the asking rent for the space had been
$27 a square foot, but he is now considering a deal at $18 a
square foot. "If it were a marginal tenant, I wouldn't even
be thinking about this," he said.
James S. Meiskin, the president of Plymouth Partners, a brokerage
firm that represents many large companies looking for space
in Manhattan, agrees that there is a gap between signing and
asking rents, but he says the difference is in the area of 8
to 12 percent. He suspects that tenants who are looking for
smaller blocks of Manhattan office space, because of the greater
availability, are probably being offered larger discounts than
those looking for larger spaces. "I think rents will probably
level off soon because the economy is picking up," he said.
Mr. Lebenstein and Ms. Sunshine, however, are not so sure. "I'm
advising tenants to wait until after Labor Day," Mr. Lebenstein
said, "and not rush into deals Ü I think prices are going to
come down even more."
Ms. Sunshine agreed. The overall market, she said, is in transition
and "landlords are still asking rents from a year ago." But,
she added, "at some point that will all have to be adjusted."
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