The consensus among real estate executives throughout the city for months has been that even if the nation were in a recession and layoffs ensued, it would be the falling-off of the weak and impact the financial giants of this city only minimally. Most attributed the increase in unemployment and any rise in vacancies nationally to the dot-com shakeout and said that the amount of dot-com space throughout the city was actually a blip in its radar.
Layoff figures from across the country indicate that actually the largest number of layoffs in the fourth quarter of 2000 and the beginning of the first quarter of this year are in the manufacturing sector. Plant closings have returned industrial space to the market, but cutbacks have actually returned little office space. Challenger Motor Freight, for example, set a layoff record with its termination of 1402, 208 jobs in January 2001.
The second largest contributor to the unemployment rate nationwide is retail. With the demise of Bradlees, Sterns Montgomery Ward and the trimming of other stores such as Penny's Sears and Home Depot there is need for less retail space, but many of these vacated storefronts have already been leased out to other companies.
George Twill, who heads CSFB's real estate, for example, notes that CSFB is one of many bricks and mortar businesses that will withstand any economic downturn and will not be returning space to the market. In fact he refers to deals covered by GlobeSt.com recently that show the company is actually expanding its holdings and looking to ensure it has enough space in the future. He says, "This city is the financial capital of the world. A downturn in the economy won't hurt it in terms of real estate or its economy in general."
City Hall agrees. Ironically it was criticized last year for not working hard enough to keep its manufacturing sector or attract new manufacturing here. Now, with the record layoffs coming from manufacturers, the decline of this sector, pushed out by rising rental rates and the increasing number of businesses looking for more industrial-to-office space, this may be what also helps the city's economy and real estate market. Much of the city's industrial space has become office space.
While some companies may fall in the dot-com shakeout or in a recession, the mayor's office is quick to point out the city's unemployment rate is below the national average of 4.2% in January – up from 4A% in December 2000. Nationally 140,000 jobs were lost in January (although 200,000 people were hired), but the city still leads the nation in job creation.
Even in the retail sector, with stores willing to pay more than $700 per sf on East 57th Street, this market will not suffer most contend. "The downward turn of the economy will only serve to normalize the rental rates around the city," Twill says. Spokespeople from the mayor's office conclude that New York has weathered economic storms before and is right now outpacing the nation so there is little cause for fear here.
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