As any business owner can attest, commercial rents in the New York metro area over the last three to five years got way out of control. Rental rate increases were outrageous. With commercial rents dropping like stones, businesses have real estate opportunities they did not have just six months ago. Whether your business is devoted to Manhattan, or you are willing to operate elsewhere, business owners have many options to downsize or expand.
What makes a good deal? Is price the only parameter? “With all these opportunities, however, it’s often not so much the ‘where’ as it the ‘how,’” says John Magnani, director of Daniel Gale Sotheby’s International Realty’s commercial division. “The cheapest deals are available in the marginal areas the most recently gentrified like East New York, Brownsville, Jamaica, Freeport, and Hempstead but the locations that are the last to be gentrified are the first to slide in a down economy.”
While there may be little value in marginal areas, business tenants are realizing that they don’t have to be in specific buildings to keep up with their competitors. They can do their same job just as well in a different building in a slightly different location. Businesses that once insisted on Class A office space are going to B buildings in convenient neighborhoods, such as the Garment Center, Madison Avenue below 42nd Street, and Park Avenue below 42nd.
“It’s a re-pricing of what companies, customers, and clients think of value and smart business practices,” says Josh M. Dionne, president of JMD Realty Advisors, Inc. in Manhattan. “People are looking for value and they’re finding value in slightly-less-than-central business district locations.” Dionne uses the example of the Garment District. The value of easy access to Grand Central, Port Authority, Penn Station, and several different subway lines, and lower asking rent per square foot, outweighs the cache of Madison Avenue or 5th Avenue. There are many recently renovated office buildings in the Garment District. In fact, customers are less impressed with flashy offices than they are with demonstrating smart business practices in the current economy. “I have found that when people relocate from a higher level building to a slightly less desirable building, their customers are always directly there behind them saying, ‘Gee, you realized it was too expensive for you over there, and you moved to another building where it’s less expensive. Good for you. When my lease comes up, I’m going to investigate it as well,’” says Dionne. “There’s a lot of change in the perception of value going on right now.”
More than 9 million square feet of sublease space in Manhattan has been put on the market in the last 12 months, and that has really changed the entire market, including subleases and direct leases. Landlords are aggressively seeking good tenancies, so today, you’ll find anywhere from a 20% to a 35% reduction in lease prices from 12 to 24 months ago. If your business is doing well in the current economy, and you want to expand or upgrade, your dream spot may be affordable. Typically, when the real estate markets go down, tenants on all levels trade up to a better class of building. If a tenant is paying $90 a foot for a Class B building, they can probably find space in a Class A building for the same price. “They call it ‘flight to quality’ or ‘trading up,’ ” says Gregg Najarian, Corporate Managing Director at Studley. “The C Class tenants go to B, B goes to A.”
Because of the downsizing in the financial sector, it’s a renter’s market Downtown and on Wall Street. Some of the transactions in the financial district that were completed over the last 18 months were on the high end of the market. Class A buildings were leasing for $190 to $200 per square foot. Those same firms have now put their new space on the market part or all of it for half of what they paid. In some cases they haven’t built their space out.
Now is the time for small businesses to think big with their real estate goals. “When I call for smaller requirements, I get return phone calls right away from senior leasing folks within a landlord’s organization,” says Najarian. “I never got that before; but now these smaller deals are more important to them.”
Not all businesses need to or even want to move closer to Midtown Manhattan. David Lebenstein of Colliers ABR says that Yonkers, the Grand Concourse and Fordham Road neighborhoods in the Bronx are options close to Manhattan. Traveling north is another option for real estate deals. According to Judd McArthur, senior vice president of CresaPartners, Greenwich and Stamford, CT, are viable alternatives for any sized business looking for space. Like Downtown Manhattan, these towns were home to many financial services companies that have now downsized or disappeared.
Small businesses can also look west. While you may not find a 24/7 atmosphere, you will find business support 14/5 in New Jersey. The West Hudson has convenient mass transportation, highways, and an airport. Newark, for example, has an accessible public transportation infrastructure and the city offers a lot of build-to-suit spaces at low prices.
Daria Meoli is the Executive Editor at The New York Enterprise Report. She can be reached at email@example.com