The Manhattan office market continues to erode, according to a year-end 2001 office market report by Plymouth Partners, a commercial real estate firm specializing in tenant representation in New York.
The company doesn’t see a quick turnaround happening this year either. "While the national economy may improve during 2002, the local demand for office space will lag far behind," the report states. According to Plymouth Partners, many negative factors contributed to the end of nine consecutive years of positive net absorption, including the weakening national economy, the dot-com crash, the reduction of advertising revenues and the Sept. 11 terrorist attacks.
The report also revealed that most of the occupancy losses of 2001 took place before Sept. 11. "Following the boom years of 1999 and 2000, during which net absorption of office space totaled 15 million sq. ft., the amount of leased space plunged 21 million sq. ft. by Sept. 10," the report states.
Between corporate downsizing and the dot-com fallout, sublease space rose in 2001, says the report. In 2000, sublease space was 15% of total office inventory; by the end of 2001 it was 35% of the 46.7 million sq. ft. available.
Plymouth Partners are wary of this year’s recovery prospects. Even with a recovery in the national economy, the company maintains that Manhattan office space demand won’t be returning anytime soon:
• More than 1/3 of the tenants displaced on Sept. 11 have either permanently left Manhattan or have been backfilled into other corporate facilities. • No industry has the capacity to absorb the massive dot-com space. • The financial services industry is suffering with layoffs and movement of backup sites away from the city. • More than 100,000 jobs were eliminated following Sept. 11. • Pending bankruptcies will make the situation worse.
In general, the Downtown Manhattan office market faces the most strife, the report states. "There will be virtually no demand for Downtown office space, until the transportation infrastructure is rebuilt, rents drop further and government enacts incentives rich enough to attract cost-conscious tenants," the report says.
Even with these issues in place, the company does maintain that New York’s office market will recover. For now, though, the company says that tenants have an opportunity to secure more affordable, quality space, in the first tenant-driven office market in Manhattan in nine years.