A Fresh Take on CRE

Still a Landlord's Market for Small Tenants

Despite the economy, your small company is growing and you're ecstatic. Now's your chance, you're finally going to be able to afford a beautiful office in Midtown Manhattan, and you're going to get it for a song . . . right?

Not really, and here's why. As I mentioned in my previous post, the NYC commercial real estate market lags the economy by a few months. Here's what happens - the green text is where we are in the cycle, and the red text is when this cycle will impact small tenants:


  1. Large companies start doing poorly

  2. Large companies report lower than expected earnings

  3. Large companies announce layoffs

  4. Large companies put large blocks of sublease space on the market at a price slightly below market

  5. More large companies put large blocks of sublease space on the market at a price slightly below market

  6. Large companies struggle with their sublease space on the market for a very long time

  7. Large companies start making deals significantly below market on their large blocks of space

  8. Landlords struggle with large blocks of space on the market for a very long time

  9. Landlords start lowering their asking rents on large blocks of space, as they have to compete with the available sublease space

  10. Small companies start feeling the impact of the slow economy and delay or cancel growth plans, some companies go out of business

  11. Small companies put small spaces on the market at a price slightly below market

  12. More small companies put small spaces on the market at a price slightly below market

  13. Small companies struggle with their sublease space on the market for a very long time

  14. Small companies start making deals significantly below market on their sublease space

  15. Landlords struggle with small spaces on the market for a very long time (these spaces have little impact on their bottom line, so they stick it out for a while)

  16. Landlords start lowering their asking rents on small spaces, as they have to compete with available sublease space

As you can see, it will be quite some time before the effects of the current economic conditions will be felt by small tenants. It's hard to say how long each one of these stages will last, but my conservative guess is 1.5 months per stage. By this logic, small tenants won't see significant benefit from the current market conditions for about a year and a half (and that's assuming the economy doesn't get better in that time).

Unfortunately, the market is never particularly kind to small tenants, and in-fact once you adjust for inflation, the NYC market has almost never gone down - period. (Please pause for a commercial break) With this in mind, it's critical that as a tenant, you are represented by an expert that understands the market, the players in the market, and the available space. While you can't change the market conditions, there are ways to use the conditions to your advantage to reduce your overall occupancy cost.




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