President's message: The commercial real estate sector

As commercial practitioners, the question going into the Summer of 2008 is what effect the faltering residential market and the collateral shake-out on Wall Street will have on the commercial real estate sector. Historically the commercial market lags the residential market by 18 to 24 months, and if this holds true in the present time frame, then the commercial market is due for a correction. At present, we don't see the harbingers of a commercial meltdown in the outer boroughs as product in virtually all classes remain extremely tight with increasing rents in the retail, industrial, and office sectors. In addition, there is a scarcity of investment-grade property. There is some room for concern at present; in addition to the proliferation of lawn signs on residential plots in the outer boroughs, I see commercial real estate experiencing an increasing bifurcation of the real estate market. Mom and pop entrepreneurs are having trouble keeping up with the increase in rents for office, industrial, and retail. These mom and pop are in many instances the entrepreneurs that have historically fueled a significant portion of the Brooklyn and Queens marketplace. These rents are serving to raise the already challenging entry barriers for new or expanding tenants. While this may not be a problem in a market with a nominal vacancy rate, it will be interesting to see if these barriers create a void in the next few years in the mid-size market. I would characterize this area as 3,000 to 6,000 s/f for office users and 10,000 to 20,000 s/f for industrial applications. A lot of press is generated when large corporate tenants receive incentive packages to stay or expand in metro New York and I am wondering if there should be more of a focus on the small to medium size companies to stay in New York and what programs and incentives could be made available to these entities. Everyone in the industry is always looking for the big deals, but I believe most of us couldn't be in this business without the small to medium tenants taking space. William O'Brien is the president of the Downstate Chapter of SIOR, Brooklyn, N.Y.