Six Questions For Colliers' Joseph Harbert

NEW YORK CITY-"Everybody wakes up everyday and wants to be connected to something larger than themselves." So says Joseph Harbert, the new president of the eastern region for Colliers International. After his widely-reported departure from Cushman & Wakefield, he talked with GlobeSt.com about the Manhattan office market, new leasing opportunities and his next steps amid a changing brokerage landscape.

GlobeSt.com: We are seeing more renewals than moves in the NYC office market. Why is that occurring, in your opinion?

Harbert: There are a significant amount of renewals. Last year if you look at the stats, there’s about almost 30 million square feet of leasing, and there’s about eight million square feet of renewals on top of it. It was a significant component of the market even last year. Obviously you have some signature deals this year so far, like the Viacom deal, for example, which was a huge deal. But there’s a couple reasons for renewals being in the forefront. One of them is people don’t like to move, generally speaking. If could sit tight where you are, it’s generally a lot easier. On the other hand, you also have the desire for some people to reduce their footprint, get more efficient and to right-size their office space – those dynamics go together. Number two, the landlords in New York are very sophisticated and they like holding onto their tenants. If the tenants can pay the freight, landlords are always willing to deal with their existing tenants, provided that they are good tenants, obviously. Landlords are being very aggressive in trying to hold onto their tenants. The third thing is for most companies, capital is something that is expended very carefully. It is expensive to move. If you move into a pre-built, that’s fine, but you move into a new space and you have to construct your space, you’ve got $200 a foot that you’ve got to spend in capital. Some firms are willing to do that because they are unhappy with their current space and they can’t cut a deal where they are, but in a lot of senses, those are the people that want new space and change their culture. They want to get down to the right size for offices, the right size for cubes and create a culture and environment for their people. If you look at last year’s 38 million feet, if you do the math, renewals were a fifth of the market. This year, it seems like with the large deal we just had, renewals are probably a significant component of that.

GlobeSt.com: So would you say tenants opting for longer-term leases or shorter-term?

Harbert: Most of the leases in New York are generally 10-year deals. If you go sign a lease somewhere and you have to amortize that capital, you want to do it over a long period of time. Those are generally 10- or 15-year deals. There is a little bit of a trend the first five months of this year for what we call band-aid deals. These are companies which are growing rapidly or are uncertain about their business plan. There’s uncertainly in the world, the economy, jobs and Europe, so companies get a little cautious in that environment. There is a bit of a trend to take a shorter term or to do these band-aid deals where you are in existing space and you go to a landlord and you say ‘I’ll extend for three years or I’ll extend for five years or I’ll extend for five years and be able to cancel after three if I make a payment.’ There’s a little bit of that going on, but I don’t see it as a major trend.

GlobeSt.com: What Manhattan submarkets are showing growth?

Harbert: It’s really interesting how this market has evolved. When I first started in the market, you looked at Midtown South and it was called the alternate market. People who got a little bit of sticker shock when rents started going up in Midtown, they wanted to be a little bit further south and save money but still be close to Midtown. Now Midtown South is on fire. Out of all the CBD’s in the country, it has the lowest vacancy rate and it is the tightest submarket in the nation. It is incredibly desirable and rents have really skyrocketed in Midtown South. It is popular, it is interesting space, people want to be there and people are willing to pay the price. In fact, if you look at class A rents in Midtown and Midtown South, the differential between those two is very small now. Historically, there’s always been a $15 to $20 differential. It’s down under $6 a foot. There is a shortage of class A space in Midtown South. It is simple supply and demand as well. As supply goes down, prices are going to go up, but we are impressed with how much the prices have gone up in Midtown South. Downtown, also, is still a really strong market. For those of us who are inveterate New Yorkers, you always worry about Downtown. It is always a market where sometimes it is really good and sometimes it is very quiet. But now, Downtown has changed. It is so different, it is a desirable location, obviously there are a lot of great things going on down there and the pricing is still relatively good. Where the falloff activity has occurred is probably in Midtown. Class A vacancy in Midtown is probably higher than the other two segments.

GlobeSt.com: What industries are the most active and why in NYC? Tech? Healthcare?

Harbert: It is really information, media and technology firms. There are some financial firms that want to be there, so that’s what driven it, and what you see is more demand from those firms in the city at this point than there is in the financial service sector.

GlobeSt.com: With that said, will we see a declining footprint from white-collar industries like financial services and the legal industry?

Harbert: If you are specifically honing in on Downtown, you have good stock, brand new construction, tremendous infrastructure being put in with the transit hub and the Calatrava center and all of the things going down there, it has become a mecca for tourists as well. So Downtown isn’t going to languish at all, despite what happens with the financial service sector. Remember, even in a year where we’ve had European bank problems and some of the big banks here in New York with their own issues, they are still leasing 25% of the space out there. It hasn’t gone down to zero, and I have great faith in the financial service sector in New York. New York is not going to be in that loser when it comes to financial services. I think we will have a more diversified array of tenants in the city, and we are starting to see spillover into Brooklyn.

GlobeSt.com: Now let’s talk about your new role at Colliers. What would you like to achieve in your first year?

Harbert: My responsibilities go up and down the East Coast. I’ve got Boston, Stamford, CT, New Jersey, New York, Washington, DC and Richmond, VA. We have strong leadership here. We are a firm that is of a great size that is ready to grow. We are not too big like our competitors and there is an opportunity in this marketplace. There is a lot of movement and activity, vis-

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM Digital Member, you’ll receive:

Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
Educational webcasts, white papers, and ebooks from industry thought leaders
Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor