No Spin Zone! Brokers Brutal on Commercial Market's '08 Turn

The commercial real estate market must really be wretched. How else to explain Cushman & Wakefield’s midyear breakfast on Tuesday morning when, in Michael’s glassed-in patio, a couple of ballsy brokers erupted with skepticism, calling into question their bosses’ own stats—to those bosses’ faces. In front of the press.

“If I were sitting in the media looking at the stats, I’d think that someone was drinking the Kool-Aid,” said Joshua Kuriloff, a broker at the firm.

Mr. Kuriloff even uttered the R-word (“recession”) to describe the economy—a term that’s verboten among most real estate types, who favor limper nouns like “contraction,” “slowdown” and “downturn.”

Mr. Kuriloff wasn’t alone in his skepticism.

“Not to be the purveyor of doom and gloom, but I just don’t think our stats take into account the sublease market very well,” Gus Field, another broker, said.

Not that the picture painted by their superiors—Joseph Harbert, chief operating officer of the New York Metro Region for Cushman & Wakefield, and Gene Spiegelman, executive director of retail services—was exactly sanguine. Both Mr. Harbert and Mr. Spiegelman made negative points, but then strove for moderation, tempering them with positive statements (which was fairly easy to do, given that the economy, as per the statistics, is perplexing at best).

For example, Mr. Harbert said, “Leasing is holding steady, but there is negative absorption,” meaning more space is coming onto the market than is being leased. “Pricing for the new space on the market is higher than we would have anticipated.”

Indeed, office asking rents rose 21 percent from the same time last year, reaching $67.13 per square foot. Average asking rents for subleased space also increased. Oddly, so did vacancy rates in both directly leased and subleased space (to 7.1 percent and 1.5 percent, respectively).

The stats about investment sales were less ambiguous, indicating a substantial downturn: only $13.8 billion in transactions in the first six months of 2008, in contrast to $34 billion at the same point last year. And many of those ’08 transactions involved Macklowe Properties, which sold its properties only because the family-owned firm had defaulted on billions in short-term loans. Not exactly the most propitious of messages. And then there’s the fact that much of today’s investment is bolstered by foreign money.

For his part, Mr. Spiegelman said “things aren’t so bad” in the retail world. But as in the other sectors, the stats gave mixed messages. In Soho, average asking rents rose to $333 a square foot annually, and on the luxury stretch of Madison Avenue, asking rents rose 8 percent to $1,107 a square foot. At the same time, availability on that strip nearly doubled to 13.4 percent. Meanwhile, on the Upper West Side, asking rents actually fell 9.5 percent to $316 a foot.

Can we expect more negative stats to come? Mr. Kuriloff seems to think so: “Traditionally, the stats lag behind the market by several quarters.”

drubinstein@observer.com