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Is Manhattan becoming to dependent on e-business?

How much of the boom in the Manhattan office market is resulting from explosion of dot-com companies and what will happen when many of these start-ups burn through their venture capital?

An analysis by Edward Warren & Company, an exclusive tenant representative broker that closely studies emerging market trends, indicates that a significant portion of the office market boom is due to new e-commerce companies.

"As e-commerce companies go, so may the market," observes Tris Pough, president of Edward Warren & Company.

"The question is not if many in the current crop of Internet companies fail, but when," predicts Pough. "And this is no secret to savvy venture capitalists and market observers, who have said that only a quarter or a third of the companies they fund will likely succeed. The others will merge or fold."

In terms of market impact, the Edward Warren analysis shows that approximately 6 percent of the companies occupying space in Manhattan are Internet-related. Thus, if one-third of these companies get into trouble when the inevitable shake-out hits their industry - and this is a conservative estimate - it could affect the balance of negotiating power between tenants and landlords.

"In a Manhattan market where the current vacancy rate is in the range of four to five percent, there are two tenants chasing every landlord," explains Pough. "If the rate is bumped by 2 percent by the failure of one-third of all Internet companies in a given time period, the vacancy rate jumps to 6 percent to 7 percent. Thus we'd have two landlords chasing every tenant."

"While we are projecting a failure at a third of the Internet companies, we also foresee that the surviving Internet companies will experience significant expansion, absorbing at least some of the space vacated by dot-com companies that are acquired or go under," says Pough. "Further mitigating this trend are new dot-com companies moving to New York."

"Of course, if Internet companies were to fall completely out of favor with Wall Street, the market disruption could be quite severe, swinging the Manhattan office market pendulum back to the tenants' side, triggering a notable price correction," says Pough. "Keep an eye on what the venture capitalists do."
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Article Details
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Publication:Real Estate Weekly
Article Type:Brief Article
Geographic Code:1U2NY
Date:Feb 2, 2000
Previous Article:Study reveals tech tenants will pay to stay.
Next Article:Legg Mason Real Estate Services.

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