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No matter the news of investment banks and their thousands of lay-offs, high gas prices, and slow growth: Office building landlords are still happy to charge premium rents! The NY Times sums it up in the headline, "As the Economy Heads South, Office Rents Go North." Average office rents per square foot are up slightly from December, even in spite of tens of thousands of square feet being shed by financial services companies. One broker says, "The landlords are looking in the rearview mirror. The tenants are reading the newspaper. You get a little gridlock there.”
Office Rental Irony of Faltering Economy
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If the rent sought is higher than market, vacancy rates will go up, and landlords will be forced to adjust rates downwards to find tenants.
You'd think so, but I've worked with property owners with ridiculously high vacancy rates who still refused to lower their rents even a bit. I suggested that some rent would be better than none, but they would say that they can't be giving the space away.
Another issue is how much higher are rents rising? Two years ago, a rent hike of 20-50% was pretty normative. If rents are rising this year by 5-10%, then, while they are going up, the trend line is flattening. Any landlord will tell you that the key, besides location, is the quality of the building. New Class A rents have to be high to recoup costs, but any greedy owner of a musty Class B building is going to get caught. And those big financials committed to long-term leases. unless they go bankrupt, they have to honor those leases or pay a high price. That space is still occupied, if only by empty desks.