Vacancy! Office space opens up in some of America's most wired cities
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Vacancy!
Office space opens up in some of America's most wired cities.
By Jonathan Pont, Smart Business
One commercial shown during the Super Bowl featured a teary-eyed monkey on horseback, riding slowly through a boarded-up dot-com ghost town. As many Internet companies go bust—some in spectacular fashion—the valuable office space they once occupied is back on the market and up for grabs.
"There's a flight to quality," says Jeffrey Bernstein, managing director for New York real estate firm Insignia/ESG. A year ago, he says, "capitalized firms with big growth plans" helped double the price per square foot in choice Manhattan locales, relegating old-economy firms looking for more space to the isle's westernmost hinterlands. But by the second half of 2000, companies like MortgageIT.com and Oxygen.com put space on the sublease market; marchFirst's lease on its Park Avenue South digs was terminated, freeing more than one-quarter million square feet and stirring up the marketplace again.
With conditions tight, "the phone wasn't ringing," Bernstein says. "Now, activity has resumed, and landlords are working to determine who's real."
Like New York, Seattle's economy is diversified. Anchored by aerospace and software, the Emerald City is also home to a growing number of biotech and telecom companies. Oftentimes, says Jon Runstad, CEO of Wright Runstad & Co., companies pluck space off the market a matter of hours after it is listed. Rather than vacancy prompted by failure, Seattle's real estate market has seen a slowdown in Internet companies seeking to expand their presence. "Stronger companies are still growing," says Runstad, whose tenants include banks and insurance companies. "The market is sound, but it isn't as frothy as it was a year ago."
In San Francisco, dot-coms had flocked to South of Market, a trendy area where real estate has experienced the most dramatic pullback. According to Dave Churton, senior managing director for Insignia/ESG's San Francisco office, rents as of February 28 had fallen by 40 percent; meanwhile, vacancy rates went from about 3 percent to more than 15 percent, a dramatic change from only a year ago when landlords called the shots. Now, SoMa is a leaser's market: Potential tenants enjoy greater leverage in wish lists like improvements to the space and terms of the lease. It's a boon for brokers, as more liquidity in the market means more business.
Much is the same to the south in Silicon Valley, another area that experienced a surge in demand for real estate in 2000.
"It was feverish," says Mark Jones, coprincipal of San Jose's Hudson Jones Commercial Real Estate. "Multiple offers were not uncommon at prices that quickly escalated," he says. Jones considers vacancy rates of 7 or 8 percent a "balanced market." But as 2000 came to a close, overall Silicon Valley vacancies stood close to 4.5 percent, and as low as 1.3 percent in downtown San Jose, according to Insignia/ESG. |
