Learning From History: It's not the Apocalypse

Grubb & Ellis research is at it again with hands-down, the best research report you'll see about the current state of the Manhattan office market.

By drawing on our own market research—which dates back to the 1960s—Grubb and Ellis is able to view the current market troubles in the context of similar past economic events.

The views expressed are consistent with the 2008 projections that we shared with our clients and the media at the end of 2007.

To read the full report: click here!

20% Chance that CBRE May go Bankrupt

According to Morningstar, with a very high debt load, prospects of global real estate services firm - CB Richard Ellis are "precarious." The most telling quote of the article is this:

"We assign a 20% probability that the firm could go bankrupt and equityholders' value would be wiped out. (Even if the firm avoids bankruptcy--which we believe is very likely--it needs to service more than $2.6 billion in debt through a cyclical downturn, and we forecast refinancing requirements of $1 billion in 2011 and $1.2 billion in 2013.)"

No question, the market is tough for all real estate firms in this market. However, it appears that CBRE through its acquistions and expansion may have bitten off more than it can chew.

For the full report, click here.

Market Update: Leasing Activity Down 20% From this Time Last Year

Grubb & Ellis New York has released its Third Quarter 2008 office market trends.

Here are the highlights:

The financial crisis and economic downturn has directly effected the NYC office market

Available sublease space increased to 8.9 million square feet with the addition of 1.5 million square feet this quarter
Class A direct asking rents declined for the second consecutive quarter, down 1% since the first quarter.

Leasing activity is down 20% from this time last year, with 19.9 million square feet leased through the first three quarters of 2008.

Click picture for the full report:

The Market is Starting to Get Better for Small Tenants

Sixth months ago I mentioned that despite the softening of the NYC commercial real estate market, it was still a landlord's market for small tenants.  In my post, I predicted that it would be a little over a year before the market really softens for small space, and a year and a half before small tenants start making deals significantly below existing market prices. 

However, as anyone can see, the financial crisis that our world, our country, and particularly our city is in, is of greater proportions than anyone predicted.  So, instead of being at step 9 in the "decline cycle" as I expected, it seems that we are onto step 10 ("Small companies start feeling the impact of the slow economy and delay or cancel growth plans, some companies go out of business") and we are moving through the steps at a quicker rate than anticipated.  

This said, I do not expect small companies to get big discounts on space until early 2009, and even then, I would not expect discounts as large as those that big users are getting.  There are several reasons for this.

1) The real estate market lags the economy (hence early next year, not now)

2) The supply of small spaces is still very low

3) The demand for small spaces has not declined significantly - this is due at least in part, to the many bankers who have been laid off by the big firms and are going off on their own starting new shops

4) An empty small space has much less impact on a landlord's cash flow statement than a large space does.  Landlords can afford to be more stubborn with their small spaces and explore their options.

So, what does this mean for you if you are a small company considering a move or looking for space? Now, is the time to start your search!  If you figure out what you want now, you'll be in a great position to take advantage of the market in a few months!

Market Predictions for the Next 24 Months

As I may have mentioned in the past, the research group at Grubb & Ellis has been incredibly insightful in predicting this downturn.  In fact, present market conditions on track with what the G&E research group predicted back in November of 2007.  No other research group, came close to predicting this downturn.  That said, let's face it, this financial crisis and the resulting real estate downturn is unlike anything anyone predicted.

So, with that in mind, I'd like to share with you Grubb & Ellis New York's predictions for the next 2 years.  Happy reading!