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WHERE DO YOU STAND ON CONCESSIONS?

A rising tide doesn’t always raise all boats. Sometimes it just creeps higher around your neck. That’s the somewhat skittish take on the current leasing market expressed by 230 voters in Last Week’s Quick Poll. Some 43% said that when it comes to concessions, they’re Standing Pat–But It’s Getting Tougher, implying that a rising tide of concessions will eventually sweep their resolve away. For a sinking 38%, Tenants Have Us Where They Want Us. Contrast that to the cavalier 19% Who Don’t Need No Stinking Concessions. Commentator Andrew G. Simon, Manhattan-based executive vice president of NAI Global of New York, thinks this happy handful won’t be smiling for long. Here’s why:

“These numbers don’t surprise me. The market, whether you’re talking about leasing or investment sales, is undergoing a repricing. When the market begins to soften on the leasing side owners will be willing to concede additional free rent or work contributions to tenant fit-outs, which they can sell to the tenant as reducing their overall occupancy and net effective rent. At the same time, they can show the face rent to their lenders that they need to satisfy their loan requirements.

“Nationally, of course the markets vary dramatically and secondary and tertiary markets are not going to hold up as well as major business centers–especially New York City. And my bet is that the 37% who say tenants have us where they want us are more apt to be in secondary or tertiary markets.

“This is a weakening market from the owners’ perspective; it is a market being impacted by the economy, which is not rebounding dramatically by any stretch of the imagination. I expect that we will continue to have a softer economy through the remaining months of 2008. And with a presidential election and a new administration coming in, there will be the impact of that six-month transition to the general economy, and historically that’s been on a negative basis.

“So there will be a pause in the general economy. Many economists have come out recently saying maybe the worst is over and the second half will see a little recovery. Well, there are optimists out there, but I’m not sure I share their view. And I think it will be a year from now when you will see a recovery to the national economy.”

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