Status quo--get used to it!
My advice to those in the real estate business is, "Get used to it," because the best predictions show us living with current conditions for at least another 12 months.
The last three years of stagnant rental and absorption rates have seemed much worse than they really have been. It's a trick of perspective. The current downturn followed quickly on the heels of Manhattan's biggest real estate boom in decades. Worse, it was marked with a cataclysmic start date, September 11, 2001.
In reality, however, this downturn fits in with historical precedent, and is in fact substantially milder than the one that ravaged New York City in the 1980s.
Four months ago, many people were trumpeting good news. They were predicting rapid economic growth in 2004, a surging job market and a quick turnaround in the leasing market. This mantra was repeated so often that it became received wisdom.
The chorus stampeded some tenants into cutting quick deals. They were trying to lock in the bargains while they lasted. Today, however, reality has reasserted itself: New York is not likely to see rapid growth in 2004, and our economic indicators will probably only eek out the tiniest positive improvements.
Depending on the source of your numbers, that means vacancy rates will hover around 13 percent, average rents around $38 and net absorption around 0. Jobs growth is expected to be 0.6 percent in 2004, according to The Federal Reserve Bank of New York. That is not enough to have much of an impact on the leasing market.
What can the real estate industry do to make the best out of this sluggish market? Some strategies have already been proven.
For landlords, reinvestment is key. Make your buildings as good as you can, maintain them well and move forward with upgrades to the lobby, systems, elevators, telecommunications and windows.
It also pays to prebuild spaces so you can deliver turnkey offices to new tenants, who are increasingly wary of taking on the expense and effort of overseeing the build out of their own
These are all strategies that Adams & Co. follows with the buildings in our management portfolio. They have paid off handsomely, with all 22 of our buildings at 92 percent occupancy or above.
Tenant brokers have their own challenges. While it might seem easy to justify a lack of activity by pointing to the slow market, brokers who are not closing any deals today would probably not do much better in the best possible market.
All brokers need to canvas, network in their target industries and meet tenants in whatever manner possible. The 10 tenant representative brokers that report to me closed 275 deals in 2003, for a total of about 1.8 million square feet of space.
On average, we can only expect one out of every years to be an "up" market. The rest are flat or down. That means the current "depressed" conditions should in fact be considered typical. With the right Strategies, it is certainly possible to succeed in this market.
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|Title Annotation:||real estate market|
|Publication:||Real Estate Weekly|
|Date:||Apr 7, 2004|
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