Now, more than ever, the Downtown office market of Manhattan provides tremendous value for small tenants. Let me explain why . . .

Post 9/11 the New York City office market took a tremendous hit. Companies fled Manhattan for the suburbs, and Downtown Manhattan was hit the hardest. Faced with high vacancy rates, Downtown office building owners had to make a tough decision. Grin and bear it, sell, or reposition. Since Class A space came way down in price, Class B and C space looked increasingly unattractive to tenants. Most Class A landlords stayed put or sold, but the Class B & C landlords mostly repositioned their buildings or sold their buildings to new owners that repositioned them. Virtually every Class C building, and many Class B buildings were converted to residential rentals and condos. This left the Downtown market with a high proportion of quality space, and much less office space - period. As a frame of reference, immediately preceding the events of September 11, 2001, the downtown market had 82.4 million sf of office space as compared to the current number of 74.8 million.

Despite the sharp decline in the quantity of office space downtown, the results of September 11 created an increasing large gap between Midtown rents and Downtown rents. Pre 9/11, rents downtown were approximately $15 less per sf than they were in Midtown (25% less). Today, they are approximately $30 less per sf then they are in Midtown (35% less). As this gap has grown, Downtown has become more and more of a value option for Midtown tenants.

So, if this is the case, why is Downtown more of a value play for small tenants than large tenants? Glad you asked . . . with the current state of the economy and the failures in the financial services industry, a lot of sublease space has become available both Midtown and Downtown. As I mentioned in a previous post, there are over 50 block of space over 100k sf available. These spaces are trading at a discount of approximately $20 below direct space. The result - large tenants that were considering a move downtown may choose to sublease space in Midtown. Unfortunately, for small tenants this is not an option. There are still very few small sublease spaces available in midtown, and those that are around are not trading at much of a discount. So, if a small tenant wants quality in Manhattan, and needs ample access to public transportation, there is no better option than the Downtown market.