NEW YORK CITY-Office tenants who get priced out of class A space in the near-future may find themselves in a difficult and lengthy hunt for alternative digs, as both class B and class C space is poised to become increasingly scarce. That was among the findings of just released research by the NYC Economic Development Corp., which states that high-growth industries and a lack of developer incentive to develop such space will create a supply-and-demand gap within the next four years.

Since 2000, New York City's supply of B and C office stock has decreased by 1.6 million square feet, the EDC reports. The outer boroughs actually realized a net gain of 4.7 million square feet of office stock from 2000 to 2012 due to the decay of Class A stock and the adaptive reuse of non-office assets.

In Manhattan though, class B and C office stock decreased by 6.2 million square feet, due mostly to the conversion of office stock into residential and hospitality uses. Going forward, Class B and C office stock in New York City is projected by the EDC to decrease further by 7.8 million square feet from now until 2025. This reduction is due to the conversion of existing space into residential, the high cost to develop commercial space, and incongruities between the required leasing terms of tenants and owners. Class B and C office space is likely to continue to be converted to residential product due to the higher potential return.

Adding to the pain, new stock is unlikely to be built as potential rental rates for class B and C space don't justify the high costs of development. The combination of increasing demand for class B and C space that is affordable to firms in high-growth industries—such as technology, advertising and media—and the continuing decline of B and C office stock will create a supply/demand gap beginning in 2018.

Meanwhile, firms in high-growth industries—such as technology, advertising and media—are expected to need about 17 million square feet of office space across the five boroughs through 2025. As the supply/demand gap increases, firms in high-growth fields may need to consider alternative office markets, the EDC asserts, as rental rates may rise, giving such companies fewer affordable options in the city.

High-growth industry tenants demand space that sits close to transportation, social amenities, clients, investors and residential neighborhoods, says the EDC, and they generally can afford rents below $40 per square foot. This kind of office stock can be found in the city's current central business districts Midtown Manhattan, Midtown South, Lower Manhattan, Downtown Brooklyn and Long Island City, Queens. Further, these types of companies seek out office space with the physical attributes they need to attract talent and clients.