First Hand Look at the Market

Depending on what newspaper, website or tv channel you choose to get your news from, you will hear very different reports on our current recession and when a recovery will occur. Being commercial real estate brokers in these times we get front row seats to the havoc that this current recession is wreaking on large and small business in all sectors. In the last few months we have canvassed the majority of the office buildings along the Route 80, 46, 10, 280 and 287 corridors in Morris and Essex counties. Through our canvassing efforts we have seen what we perceive as the “actual” vacancies and after speaking with business owners, we have heard and seen their dilemmas first hand.

Costar reports a vacancy rate of 19-20% for these markets, but having been through about 60 office buildings in the recent weeks, it seems to us that that number is off by as much as 5%. This claim is based on how many vacant spaces we saw in buildings compared to the Costar reports we ran prior to canvassing. We often walked through buildings (specifically the B/C grade buildings) that had only one or two tenants occupying only a portion of one floor while the rest of the building sat vacant.

As we visited and spoke with tenants that were still in existence in this market, we noticed many common signs of stress and activities businesses were taking to stay alive. We would estimate that almost half of the tenants that we visited had let go of their receptionist, leaving only an empty desk in the front of the office to greet us. Most companies that we canvassed could be efficiently operating in half the space they currently have due to layoffs and consolidating employees’ responsibilities. Some tenants that were in obvious trouble had expressed to us that they had already spoken with their landlord about lowering their rent or else they would have no choice but leave the building or go out of business. One tenant in particular had a bullpen area of about 20 cubicles, of which only a handful were occupied. The businesses that were still treading water and had leases coming due expressed that they wanted to wait out the market with a short term renewal, citing moving costs and unpredictability of the economy as their excuses for not moving or looking at space in the market. Empty parking lots, deferred maintenance and “dark” office units, and sometimes even hallways, were also tell tale signs that this recession has deeply affected the commercial real estate markets.

For businesses, both large and small, the only thing that matters is the bottom line and surviving this difficult and unprecedented market. For the few tenants that are in the market for new space, it all comes down to price. Low rents and favorable lease terms supersede other typical concerns such as amenities and an “A” location. Efficiency of the space and total savings is what drives deals today. If a deal isn’t attractive enough for a tenant to move in today’s market, they will simply renew for the short term and wait for this economic climate to improve. This recession’s affects will no doubt be felt for some time before things get “back to normal” and as brokers we have to work harder and be more creative to keep our deals alive and tenants moving in this marketplace.