Commercial Real Estate:
IN Focus

SOME THAWING IN THE FROZEN OFFICE MARKETS…

The Manhattan commercial office market has seemed to transition from a market with no or very little demand for space to one where tenants and landlords are again engaged in the sometimes protracted process of searching for the right space and negotiating a lease.

While there was more decline in pricing and we expect competitive pressures on rent levels to continue, we may be looking at something in its nascent stage, attitudes about how to approach the property markets did begin to change in the second quarter.

Investors, tenants and landlords have all been looking for signs that the bottom in the recession was within sight. This would be their signal that they needed to get back into the real estate market. In the second quarter, there were some tentative signs that the bottom was approaching. For New York City, as an example, one of those events was the permission received by ten major banks that allowed them to repay the Troubled Asset Relief Program (TARP) funds to the Treasury, which they proceeded to do.

While the business and regulatory landscape has certainly changed for financial institutions, repaying the TARP funds helps give these banks the capacity to respond to this new environment in a systematic and business driven way. As one of the forces that drives the New York City economy, a strong and innovative financial services industry is an important component in the recovery of its property market.

Monitoring the amount of space added and removed from the market on a weekly basis shows that market performance in the beginning second quarter was essentially a continuation of the first quarter as demand for space weakened at a very rapid pace. However this slippage slowed by the latter half of May when compared to earlier in the year. Overall market fundamentals continued their decline during the 2nd quarter, but there was clearly a moderation in the second half of the quarter. We saw that firms that earlier were not even beginning the decision making process about their respective future space and occupancy needs quickly shifted and ramped up their search activity.

With the average effective rents down by close to 40% from the peak rent numbers in 2008, many firms have decided that rents are close enough to bottom that an additional decline would not be sufficient enough to deter them from moving forward on leasing deals. In fact mid June to the end of July saw twenty two lease transactions of 50,000 square feet or more, a substantial increase in transactions in that size range. While it is too early to speak of the office market with great confidence, the signs seem to be pointing in a positive direction.


Peter Shakalis is a Director at
FirstService Williams Real Estate
pshakalis@fswre.com

©2009 NEOCORP MEDIA


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