Pregnant Building Syndrome

A startling number of Manhattan office buildings have been increasing in size without any change in footprint, silhouette or physical dimension, finds a recent survey by Austin Hanover, Inc. (AHI), a New York-based commercial real estate firm. These ‘pregnant buildings’ now boast higher rentable square footage and command higher net rents as tenants find themselves facing offices whose dimensions have remained constant yet whose rentable square footage, and rents, have increased – in some cases dramatically.

The “AHI Rentable Area Report,” looking back at the last 20 years, randomly chose 50 Manhattan office buildings and found that 32 of them – 64% - have experienced a growth in rentable square footage without any change in physical dimensions. And these ‘growth spurts’ are not minimal – 20 of the surveyed buildings grew by at least 5% and 15 buildings grew more than 10%.

The report shows that while 14 Wall Street has grown 24% since 1989, its 203,512 square foot growth is dwarfed by the 400,000 square foot growth of 111 8th Avenue – or roughly the area of floors 41 through 60 of the Empire State Building.

“In the last two decades we’ve seen massive inflation in the measurements of Manhattan office buildings,” says Edward Harris of AHI. “While spatial efficiency and loss factor have always been a topic we closely visit, this inflation in New York have become epidemic.”

The ‘re-sizing’ of static buildings is a driving cause of ‘loss factor’ for Manhattan’s commercial tenants. Loss factor is a measure of inefficiency in a rented space, the percentage of lost or unusable area in any given leased area. This lost space is comprised of shared common areas, architectural or weight-bearing construction and by landlords inflating the square footage represented in a given leased area. While a tenant brokerage firm should key on ‘usable square footage’ when representing a client, landlords will invariably speak in terms of ‘rentable square footage,’ and these numbers can be vastly inflated.

“A client of ours is leasing a 21,000 square-foot floor of a certain Manhattan office building and lease renewal has become a topic,” says Edward Harris. “Without any construction or expansion the identical area has now ‘grown’ to 25,000 square feet. That represents a 19% increase in rentable area and a massive increase in expected rent. It is critical when comparing alternates to ensure a proper ‘apples to apples’ evaluation and focus first on usable area and your company’s needs.”

The practice of re-measuring commercial spaces and/or inflating the tally is common among landlords and bears out in the report. Of the 50 buildings in the survey, the net ‘growth’ from 1989 through 2008 was 2,908,416 square feet, or roughly the size of the Flatiron building – 15.8 times over! This practice, however, is perfectly legal and it falls to prospective tenants to protect and educate themselves as best as possible.

“Understanding your company’s needs and securing efficient and spatially functional office space is a financial key. Unknowingly contracting for a space with a high loss factors across a ten-year lease can easily lead to millions in incremental expenses,” says Harris.

Harris continues that the first step in searching for office space is to understand your market and submarket. Find information on comparable office spaces and see what options are available. This gives perspective and can be invaluable when negotiating a lease or choosing to walk away from a space. A second step is having the space measured by an architect. A certified measurement is a powerful negotiating tool and can highlight inefficiencies in your potential lease space. Finally lease construction and language. Few tenants realize how arbitrary landlord re-measurements can be and protecting yourself once locked into a lease should be a key-component when negotiating the lease. And of course when viewing a space, focus on your company’s physical needs and less on claimed rentable area.

AHI prepared the survey by analyzing data reported by various data sources, including its own proprietary database, and information provided by buildings owners and managing agents.

For further information on the survey email requests to information@austinhanover.com.

Austin Hanover is a commercial leasing and tenant-specific specialty firm with an uncompromised history of conflict-free advocacy . Serving tenants exclusively and with zero landlord ties, Austin Hanover identifies properties based on tenant needs, secures and negotiates leases, and manages leases and landlord billings through the lives of the leases. Specialties at AHI include lease construction and negotiation, building HVAC systems/utilities and operations, landlord operating and accounting practices as well as an expansive and in-depth knowledge of markets and submarkets in the tri-state area.