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If anyone needs convincing that Manhattan real estate has firmed up substantially over the last 18 months, check out the sublease market. This quiet, almost subterranean corner of the real-estate landscape offers a telling look at the true strength of the market--and that look is bullish.
Over the last year and a half, the typical discount at which space is being sublet in Manhattan has shrunk by 4 to 8 percentage points, says Bob Emden, executive managing director at Grubb & Ellis Co. That discount usually runs anywhere from 5% to 50% off the current market price, though a more typical sublease discount ranges between 20% to 35%. Still, today's discounts remain a half-dozen points higher than sublease prices during the red-hot mid-Eighties.
With the overall market solidifying, and with corporations shedding employees and space, the sublease market has become more active and a more important part of the real estate equation in recent years. But it's a tricky process in which lessors are invariably taking losses as they dispose of unwanted space, and sublessees must be nimble to get the right kind of deal.
"The corporate downsizing in the last five or six years has accelerated the...