The forecast of a five-to-seven-year drought came from Cushman & Wakefield EVP Augustus B. Field IV, who based his prediction on both a historic precedent and the global nature of the current economic downturn. That precedent was the slump in leasing that set in after the October 1987 stock market crash, from which the New York market didn't fully recover until 1995, Field said.
At the other end of the time spectrum, Glen J. Weiss, SVP at Vornado Realty Trust, predicted that "we'll start getting back to life sometime in 2010," while Studley EVP David Goldstein and Durst Organization SVP Thomas Bow both foresaw a downturn lasting two to three years. Goldstein observed that the price of oil is dropping and consumer credit has loosened somewhat, but added, "this will take time to work through." Meanwhile, he said, the current economic picture is continuing to deterioriate.
The four leasing experts--convened for a REBNY "Commercial Crossfire" panel at the board's Mendik Education Center--did agree on a number of things. One was that while each had experienced his share of cycles, the current one was unprecedented in the unbroken series of financial upheavals that lay behind it. "I don't remember ever being hit in the head so many times," commented moderator Frederick Marek, president of the Vortex Group. Another concurrence was that credit will remain tight as lenders cast a warier eye on potential deals. "It goes without saying that you're going to see a great deal of additional scrutiny," said Goldstein.
On the other hand, the panelists pointed to a number of advantages that the New York market has this time around. Among these is a lack of oversupply. "The good news is that no one has space," Weiss said. Marek noted that only seven million sf of new office space is under way at present, and Bow noted that by and large, spec building is out of the question, although a build-to-suit for a credit tenant is still a viable scenario.
In contrast to downturns of the past that occurred when "everyone was fleeing the city," Marek said, New York is now a place where everyone wants to be, from both a residential and business standpoint. Bow noted that the condo-conversion boom of recent years was both a reflection of the city's attractiveness and a factor in constraining the supply of office space. Field, however, expressed concern about the effect that budget constraints will have on the city's infrastructure and livability. "Everything's been so good in New York for so long and you hope it doesn't reverse," he said. "There are no guarantees."
The panelists identified some trends that could bode well for the future. Weiss noted that some of the Wall Street employees that have been downsized recently could migrate to boutique investment houses, thus potentially boosting the space requirements of this burgeoning tenant class. However, he said, this will result in a greater volume of smaller leases rather than bringing the boutique firms up to the space requirements of the now-defunct investment bank giants. Goldstein suggested that as smaller companies join forces to survive, the resulting M&A activity could boost the financial services sector.
Although he observed that "in a word, the market is frozen," Weiss also saw room for growth in the present climate. "I think we're going to see some expansions," he said. "There are still some tenants saying, 'if that piece of space comes up, I want it.'"
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
