Flat Market the Outlook for '08

NEW YORK CITY-With uncertainties surrounding the financial services industry caused by the credit crisis of 2007, expect to see a flattening office market in 2008 as a slowdown in demand occurs. So says Grubb & Ellis’ Northeast real estate forecast for 2008.

The Manhattan office market is expected to remain stable according to David Arena, president, Grubb & Ellis New York, as rental rates should remain steady over the next 12 to 18 months with class A vacancies remaining historically low, lack of new supply over the next two years and the cost of bringing new developments to market. Average asking rates for CBD class A office space in Manhattan are projected to be $90.25 per sf in the fourth quarter of 2008, slightly up from $89.06 per sf in the fourth quarter of 2007, he adds.

The Downtown office market fully recovered in 2007, as vacancy dropped below 6.5%, a level not witnessed since late 2000. Landlords rode the increase in tenant demand by raising asking rental rates for both class A and B space to all-time highs, as class A space averaged over $60 per sf and class B space surpassed $40 per sf. Despite the strong market fundamentals experienced throughout the year, Downtown class A asking rents remained at a 35% discount when compared to Midtown, which, according to the report, will keep Lower Manhattan a viable option for tenants looking to save on their real estate expenses.