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Smaller Offices, Smaller Discounts

NEW YORK CITY-The gap between asking and taking rents is narrower for office space of less than 10,000 square feet, says a new report

By Paul Bubny | Updated on December 04, 2009

NEW YORK CITY-A closer look at the Manhattan office market shows that rent discounts may not be as high as generally assumed for the majority of tenants. In office spaces of less than 10,000 square feet, the gap between asking and net effective rents is on the decline, says a recent report from boutique brokerage Red Real Estate. That’s especially relevant in an office market where 95% of businesses employ fewer than 50 people.

“The rate of rent discounting is slowing as landlords have arrived at the point where they are either effectively moving property at the new asking price or they have reached their bottom number, even if it means a longer vacancy period,” says Janelle Benjamin, co-owner and director of research at Red Real Estate. “In this case, landlords may consider waiting for a market recovery to be less risky than underpricing the property for an extended period of time.”

Studying Manhattan commercial properties between September 2008 and October of this year, the firm found that the gap between asking and taking rents has dropped below 8% for smaller spaces, versus 15% for bigger ones. In the six months between September ’08 and March of this year, discounts hovered between 8% and 10%, but have since fallen.

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