Entering 2008, the Long Island office market remains somewhat static. Vacancy rates have essentially flattened over the last three years, while the increase in rental rates has slowed. We suspect that the deceleration in rental rates is attributable to an equilibrium in supply and demand, not to mention last year's modest property tax relief and the flattening of energy expenses. Looking down the road into 2008 the respite may prove brief because, based on what we hear coming out of Albany, school districts may have to substantially increase property taxes since the State may be unable to contribute as much as it had in previous years. Also, with oil hovering in or around the $90 per barrel level, the cost of utilities will ultimately have inflationary impacts on operating expenses, hence rental rates.

The counter balance to the forces pushing up rents could be a drop in office space demand resulting from a weakening economy. Tenants, especially financial service companies, will be taking their foot off the accelerator after having run into strong economic headwinds created by the sub-prime mortgage fiasco. For example, one of our own "leading economic indicators," namely Long Island's office sublease inventory, has grown by almost 76,000 square feet (excluding the 250,000+ square feet vacated by the failure of American Home Mortgage) over the last 12 months. In terms of employment, this amount of vacated space reflects a loss of approximately 400 white-collar jobs. Not exactly an alarming statistic, but still an about-face in what has been a very reliable economic indicator.

In summary, as we look forward to 2008 and with the knowledge that commercial real estate lags the economy by 6 to 12 months, we expect the Long Island office market to be considerably more tenant favorable by the third and fourth quarters. Accordingly, if tenants are looking to upgrade their work environment, there may be more landlord concessions on the table than there were in the past two years. Tenants choosing to remain where they are and renew their leases should take advantage of what may prove to be a significant slow down in 2008's leasing volume. We encourage our clients to consider renegotiating their lease renewals terms and conditions, even if they have 2 or 4 years remaining on their lease. Opportunities will be out there. Give The Navigator a call and we will help you discover them.