Tuesday, March 11, 2008

Wall Street woes and dirt

A few months ago I suggested that law firms lock in leases in busy markets such as New York because, even with the credit crunch, rents were still going up. I had one exception to that advice: big layoffs on Wall Street.

And now that is being predicted by today's Journal. And the numbers are not the prettiest.

It may be that the big boys hold on to some empty space if there is a bloodbath, under the expectation that they will need it again soon. But another likely scenario is that the firms, wanting to eat as little real estate cost as possible, might flood the market with cheap(er) sublease space for subtenants. Of course there are a lot of factors coming into play here (improvements and allowances, the lengths of the deals, landlords that may or may not cooperate), but it could bring some pricing into play in what has been a very friendly landlord market.

There's not going to be a rent collapse in my opinion. Heck, there may not even be much of a decline if any. But any lowering of Manhattan rents may be seen by the naysayers as more evidence of sky falling and all that, so be forewarned.


Deal Junkie said...

This might be old news, but I've heard that because the fees generated by the lawyers have gone up so much in recent years, the rent the firms pay as a percentage of revenue has really not gone up that much. Is that still true?

Not rent collapse, rents have stabilized. :)