Tenants in the market to relocate or acquire expansion space in New York City are usually surprised to learn how limited vacant office space in Manhattan really is. On top of that, they are often surprised at how rent rates have climbed significantly. After dipping during the recession, NYC commercial rental rates are now approaching their 2007 peak and there is now a scarcity of reasonably priced vacant office space in Manhattan. As recently as late 2011, there was still a pretty good selection of vacant office space in Manhattan. Much has changed in a year. Due to increased scarcity and higher pricing, the commercial real estate market by late 2012 had become challenging for businesses seeking space.
Supply-and-Demand Dictates Rent Rates
With the national economy relatively weak, why is it that the Manhattan commercial real estate market remains so strong? Basically, it is a question of supply-and-demand. On the supply side, the vacancy rate never increased as much in other major U.S. cities during the Financial Crisis, so there was never an enormous inventory of vacant office space in Manhattan for the market to absorb.
Furthermore, there have been few Class B and Class C office buildings delivered to the real estate market in the last few decades. As a result, there is particular scarcity in the lower-end market for affordable space.
On the demand side, certain industries, particularly technology start-ups, have been leasing enormous chunks of space and have been driving demand. Commercial leasing activity by technology firms has been particularly strong in Midtown South. Social media, E-commerce, health technology and ad-tech are all out there competing for prime, vacant office space in Manhattan.
Finding a Deal in a Tight Real Estate Market
If your business is seeking to negotiate a lease renewal, sublet your existing space, expand your current office space, or perhaps relocate to another building, here are some practical pointers for managing this challenging real estate market:
1. Start your search early. You should begin inspecting potential office space two months to six months before you plan to sign a lease. Timing depends on the size of the space, anticipated build-out and complexity of the real estate requirement. You should consult with your real estate broker to determine a realistic time frame.
2. Be flexible with the geography of your New York City property search. If you can enlarge the area of your search, your broker will have more listings and spaces to show you.
3. It is best to target spaces that only require minimal improvement. Constructing new office space costs money. Build-outs in Manhattan are expensive and landlords are less apt to pay for a build-out in a strong market. You are better off if you can focus on a space that requires simple cosmetic improvements.
4. You can save money on commercial rent by reducing the size of space your company intends to lease. If your company can occupy an open-plan layout and fit staff into a bullpen with cubicles, this will translate into cheaper office space.
5. Don’t delay in submitting an offer once you have identified a space you like. Good spaces accumulate offers quickly. If you wait too long before instructing your broker to submit a proposal you may find yourself competing with other offers or even losing the space.
6. Remember that landlords usually offer greater concessions (build-out, free rent) on a longer lease term.
7. Valuable New York City real estate incentive programs can reduce your rental costs. Incentive programs such as REAP and the Community Renewal Program (CRP) are available in Lower Manhattan and certain neighborhoods in Queens, Brooklyn and Harlem.
For assistance in your search for vacant office space in Manhattan, call Metro Manhattan Office Space at 212-444-2241.