The rapidly tightening Manhattan office leasing market has all the charm of a picked over pile of old clothes – all that’s now left are alarming colors or bizarre creations made for midgets or giants.

The shrinking vacancy and strong demand that have caused this mean frustrated tenants. They also mean less informed ones. In typical market conditions, a tenant looks at a number of spaces and learns about prevailing terms and prices. But when only one or two spaces could conceivably work, this process breaks down, and the tenant remains in the dark.

Another unpleasant consequence is the market’s intolerance for considered decision making by tenants. As in the boom of the late ‘90s, if you think things over for a week or two in this market, you’ll almost certainly be blasted out of the running. You will also often face competition that offers more than the asking price, as well as agents who pile on the agony by being vague about price and terms in the hope of pushing them up as negotiations proceed. You have to move fast to make a deal.

Although it has apparent similarities to the boom, the current market has a dramatically different dynamic and will almost certainly come to a different end. Instead of being driven by a demand bubble, it’s mainly the result of shrinking supply caused by residential conversions of commercial properties. In 2000 a demand bubble burst, and the market rapidly deflated; but the shortages that are driving the market this time cannot be so easily reversed. There are, it’s true, a few office buildings under construction and several planned, but together they don’t add up to enough new space to effect a change. Conversion of manufacturing buildings, which has sopped up demand in previous tight markets, is not an option, either – most of the ones that are suitable have either already been converted or have gone residential instead.

The result of this for us as tenant representative brokers is that the process of looking for property has changed. To be sure that we’ve found every possible space, we have to contact each and every remotely feasible building in a tenant’s target area and beyond – whether or not they are advertising available space. Even then we are seldom able to come up with more than a small handful of realistic choices.

The result for tenants is that they are forced to consider buildings and locations that were unacceptable a year ago –more and more companies, for example, are heading downtown as the number of their choices in midtown and midtown south shrinks – and to do so with virtually no clue of what they will end up having to pay.

As long as the general economic picture stays the same, this market looks set to persist. It is certainly no fun for tenants, but the pain can be minimized. Now more than ever, you need to work with a creative, in-touch, broker who’s not only willing to do the grunt work needed to uncover all potential choices, but is also highly sensitive to shifts in market conditions. Which is a perfect description of …


Tristram H. Pough

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