Just like the New York Yankees in the World Series, the demand for commercial real estate in New York City and other major U.S. cities just won't go away.
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That's the take offered by Samuel W. Rosenblatt, president of Olmstead Properties, a 65-year-old real estate sales and management firm that owns 3.5 million square feet of property in Manhattan. Skyscrapers and famous buildings will once again regain their glory, Rosenblatt says, though companies will probably not seek to centralize their operations as much as they had before.
For more on where this 20-year real estate veteran sees the commercial real estate market going, read on.
TSC: What trends are you seeing, or do you anticipate, in commercial real estate in large cities around the country, particularly in today's tough economic climate and new age of concern about terrorism?
Rosenblatt: Companies, I think, have realized that they cannot centralize all of their facilities in one central location. The Bank of New York had four properties that were all housed within four blocks of ground zero. I think that major tenants like this will need to think through that strategy.
They will stay in New York and other major cities but might look to spread out.
Security is going to become an increased priority. Fortunately, tenants are willing to deal with the extra efforts that go along with increased security. Buildings cannot be built to withstand the impact of a major plane being slammed into them. But the major properties are all implementing greater security measures.
TSC: Are companies now afraid to be located in or near such skyscrapers and iconic structures as say, Chicago's Sears Tower, Boston's John Hancock Tower or the United Nations in New York?
I do think that some of the value associated with being located in these high-profile buildings has been diminished ... but I think that is short-lived. Once security measures are updated, people will continue to hold these "icon" buildings in high regard.
TSC: How tough are lease negotiations right now? Are tenants driving really hard bargains?
In midtown New York, the market is still very strong. Look at Times Square. It is corporate headquarters for over a dozen major companies that were never that centrally located like that before. There is such a positive force going on in the midtown market that momentum and demand are still holding.
But no, you do not have three tenants lined up for the same space like you did a year ago. Landlords are still holding rents reasonably firm, but there are definitely more concessions being given now.
TSC: Several major corporations have recently signed leases outside New York City proper. Do you think this is something that is going to continue?
I do think the fear factor will dissipate over time. Hopefully, in the next few months.
I was just at both Yankee games, and let me tell you, there was plenty of enthusiasm and no shortage of people. The fact is, there's probably somewhere in the range of 15 million to 20 million square feet of commercial office space that won't be occupied in the downtown market because it was destroyed or rendered unusable for many years.
While it is unfortunate that some companies have relocated outside New York City, this loss of supply will have a natural effect on the balance of space left in the city to
demand. Some of the companies that have left New York City have made public statements and demonstrated their commitment to New York City. Most notably,
commitment to Times Square in the purchase of the Morgan Stanley building, and Ken Chenault, the head of
, has consistently said they are committed to staying in New York City.
TSC: Are you seeing any other changes in building trends following the events of Sept. 11? Are some companies looking to jump on the Bill Clinton bandwagon and move up to Harlem?
I don't see many tenants moving quite up to Harlem, but midtown is the strongest market. General economic downturns do hurt the secondary markets first
and in this case, that is Downtown.
So these markets are being affected by both the economic conditions and 9/11.