NEW YORK CITY-Studley’s tenant-only model means the firm is a rich source of information in terms of what’s happening in the market from their clients’ perspectives. The firm’s president, Michael Colacino, has represented a diverse group of clients--among them Cadwalader, Wickersham & Taft, Warner Brothers and Westvaco Corp. He shared his insights into what tenants are looking for in New York City--and where they’re looking. As well, he tells GlobeSt.com how a tenant-reliant business weathered the economic downturn.

GlobeSt.com: Are tenants growing? Taking more space? Renewing for the space that they currently have? What are seeing in the environment now?

Colacino: The economic uncertainty that occurred in the summer is already having a distinct effect on what’s going on. Right now we’re seeing a kind of uncertainty that we’ve never had before. If you have a recession usually you can calibrate the duration or the intensity of it. But because of the depth of the recession that we had and the fact that now we’re in this potential double dip recession, we don’t know anything about how long or how deep it’s going to be. That has essentially affected people’s expectations of the future. It’s slowed down the leasing market dramatically from where we saw it at the beginning of the year. The other thing that’s important to note is that it used to be that the stock market and the leasing market were kind of independent of one another. The perception was that there were these long, slow cycles in real estate and much more rapid movement within the stock market. But I think that you’re seeing the two markets begin to link to each other in a fundamental way. Corporations act more rapidly. They’re anticipating what’s going to happen rather than responding to it. That causes things to happen in much greater volatility and much higher and lower swings and much more rapidly. Confusion about the overall economy has resulted in a dramatic slowdown in the activity going on out there. If you look at the statistics, the vacancy data, we had been decreasing the vacant space almost from the beginning of the year until the middle of the summer and now it’s essentially flattened out. It has remained almost constant for the past couple of months and you can feel the velocity out in the market place being much slower as a consequence.

GlobeSt.com: We talk a lot about a lack of class A space here in the city. With rents on the upswing are you seeing clients scrambling to lock in space?

Colacino: I’m not sure that I would forecast rents on the upswing dramatically over the next three to six months. I think rents are flat and there is a distinct possibility that they’re going to decline if what we’re seeing out there happens. The depth and the length of the recession that we might have is very uncertain right now. But for example if there’s a European debt crisis and the two major French banks that were mentioned in the Journal yesterday have further problems, it could have a very negative effect on New York City leasing--negative from the landlord’s perspective in terms of rents going down. So I’m not forecasting an increase in rents in the next six months or so. It’s wait and see. I think there was a slight upward trend that had occurred in the first six months of the year but now it’s absolutely flat and the potential for it to fall exists. We’re a little contrarian sometimes in our perspective since we don’t represent a lot of product.

GlobeSt.com: Do you think there’s enough supply and development going on to accommodate demand?

Colacino: There’s been no supply and there have been only really two new areas of potential supply, which is the West Side Rail Yards area and Downtown. Eventually there’s going to be a piper that’s going to need to be paid. The lack of any fundamental Midtown development eventually is going to cause a significant increase in rents and the question is when that’s going to occur. We see it happening in 2013, 2014 or 2015--a lot of our competitors have said maybe earlier than that. I see it further off, but there is definitely a reckoning that is going to have to happen because of the lack of supply.

GlobeSt.com: What types of tenants do you see as being most active right now? What industries do you see the most activity in?

Colacino: There seems to be a fair amount of activity in the entertainment and media area--the Conde Nast deal is one of the more dramatic events that has occurred. And you still see a lot of activity within that space. Those organizations are not like the financial service firms, beginning to suffer immediately from the effects of what’s going on in Europe. A lot of their demand is international but a lot of it is domestic as well. That’s started to come back a little bit so I think they’re among the most active tenants out there. The peripheral activities in Manhattan, which is to say biotechnology, software development, web development--those areas continue to grow quietly.

GlobeSt.com: I know that you’ve worked on a lot of law firm deals. As far as law firms in the market now are concerned, what types of space are they looking for? What are their main requirements?

Colacino: You’re seeing a much greater level of sophistication in their requirements for infrastructure. In the old days, a bank had a data center and had very sophisticated requirements. Law firms are beginning to look more and more like that. They need to upgrade 24/7, they’re looking at issues like redundant power and air conditioning. Because we’ve had so many recent crises--earthquakes, hurricanes--everybody is thinking about business continuity. Law firms are beginning to think a lot more like banks in terms of the continuity of their operations. Everybody is very concerned about efficiency, so there’s been a lot more attention paid to the actual geometry of the floor plans that we put law firms into. The basic trend has three parts: smaller perimeter offices, greater attention paid to interior offices which then drives the construction of the space to have a greater amount of glass. So you’ll see glass has become the new black. It’s becoming such a trend that we’re starting to have landlords beginning to object to cleaning glass. As the millennials become junior associates and work their way up through the work force, you’re going to see more of a focus on that, because they care more about collaboration and the idea of working with their partner and being involved in the process of the firm than any generation has in the past. What they want is a high speed Internet connection that allows them to pull up their documents and the library materials that they need.

GlobeSt.com: Can you talk about how Studley has done during the downturn? It must have impacted your business. Has it been difficult? Is it picking up now?

Colacino: We’re a demand side firm, so when the greater market demand is down it affects our business. However, we were very well managed--if I can say so myself--during the course of the 2008, 2009 and 2010 period. We actually had higher profits in ’09 than we did in ’08, which is a remarkable accomplishment and I don’t think there are a lot of real estate firms that can say that. And we had a very big year in 2007, as did everyone. We were about 3% or 4% off in ‘08 and another 3% or 4% off in ’09 but we actually increased our profitability between ’08 and ’09 and partially that’s a function of the business model that we have. It’s a function of the management and the fact that we took steps early in the cycle as opposed to waiting, which is always a destructive move. You always have to take steps early and we saw the problem coming--we saw it in our tenants and in our clients. We understood that it was going to affect us as well so we acted early.