I was pleased to be quoted in an excellent article in Bisnow New York by Sasha Jones explaining why landlords have begun warehousing significant blocks of office space.
In 2019, there was approximately 3 million square feet of warehoused office space. That amount has grown to approximately 8 million square feet today today.
Part of the reason is because landlords are considering converting office space to alternative uses such as residential. Another reason is because as leases expire and tenants move out, some landlords are waiting for market conditions to improve so they can hopefully get higher rents.
My comments focused on the practical realities that landlords and tenants face in all of the top class A buildings. I pointed out in the article that landlords face a difficult dilemma when considering whether to undertake an expensive build out for new tenants when values have dropped and the cost of financing has risen dramatically even after the 50 basis point rate cut by the Federal Reserve. Below are my comments quoted in the article on how to protect tenants.
“I’m nervous about where I’m putting my tenants these days. I don’t want to put them in a building that’s troubled,” Colp-Haber said “ I see a building that’s half empty, that to me means the building’s headed for some type of default with their bank or some type of problem, so I’m veering away from it.”
One area in which I have particular concern is when tenants choose to embark on expensive construction work on a new office, which is particularly unwise in a troubled building. This was explained in the article as follows:
“These landlords are faced with a Hobson’s choice,” Wharton Property Advisors President and CEO Ruth Colp said.
Landlords can either take on more debt in order to (1) give a huge work allowance, (2) give significant free rent and then (3) lock in a lease at a rate of approximately half of what it would have been five years ago. Alternatively, they can let the space lie empty and wait for a better day. Many landlords are choosing the latter.
What’s the take away for tenants from these developments? Steer away from expensive renovations in buildings with troubled financials. There are many great deals available for turnkey space with either sublets or direct leases. Please contact us at Wharton Property Advisors so we may deploy our expertise to your benefit.
BISNOW
“More Landlords Pulling Empty Office Space Off The Market In Face of Uncertainty”