Other large agencies, emboldened by an improved economy but strapped by payments on excess real estate, are looking to strike their own deals to mitigate overzealous leasing in the 1980s.
"Major agencies should be making long-term [leasing] deals now in L.A., Chicago, Dallas and Toronto," said Howard Wendy, executive managing director of real estate broker Edward S. Gordon Co., New York. "In New York the opportunities are already slipping."
Among the New York giants with the highest rental tab is Wells Rich Greene BDDP, which sublets plum 57th Street offices from Avon Products. Insiders say the agency is aggressively trying to renegotiate a lease that comes due in several years.
"Real estate shouldn't be something agencies have to worry about, but they do," said Nick Baum, WRG president-international.
Aggressive downsizing has left many shops, previously bloated with personnel, now with a plethora of property. Young & Rubicam Inc., one of the only agencies that owns its headquarters, is said to be looking to lease out more than $1 million worth of space in New York.
"Real estate is a critical part of doing business that was overlooked by many and now they're paying the price," said one agency CEO.
DDB Needham Worldwide's Chicago office could save about $2 million a year if it moves from its leased space in several years.
And, after a year of aggressive consolidations orchestrated by its London-based parent, Saatchi & Saatchi Advertising finally will fill out some of the excess space in its monolithic Manhattan office building. Agency executives said plans call for the merged Saatchi-agency media company, a U.S. arm of its Zenith Media Worldwide, to be housed at the Hudson Street headquarters.
Saatchi moved to SoHo in 1988 to escape exorbitant midtown rates. Empty space there comprises a large chunk of the estimated $18 million a year the parent company pays for surplus property, a tab expected to total about $200 million over the next 20 years.
Ayer thought it was scoring a stellar deal in 1986 when the agency agreed to pay $16.8 million a year for 350,000 square feet in a then-undeveloped midtown Manhattan office tower. Unfortunately, the advertising and real estate industries tanked simultaneously in the late 1980s. Today, Worldwide Plaza is nothing but dead weight to Ayer's bottom line.
"Real estate is our biggest headache," said Glenn Corlett, Ayer exec VP-chief financial officer. He refused to discuss agency lease negotiations, but admitted that if Ayer hadn't moved in 1989 it would be "a lot more profitable."
In London, Ogilvy & Mather parent WPP Group is wrapping up a long-running dispute with Canary Wharf, O&M's landlord since March 1992. WPP now has to commit to a 25-year lease, but one that's $400,000 less per year than originally negotiated.
And there was a real estate bonus in Interpublic Group of Co.'s acquisition of Ammirati & Puris this year. Rental payments of $48 a square foot had hobbled a troubled Lintas New York before the Ammirati deal.
The merged agency is expected to take up most of the excess Lintas space after a renovation that brokers estimate will cost $10 million.
Ammirati and Lintas are moving faster than two other agencies that merged this year, Jerry Inc. and Ketchum Advertising, both New York. Almost eight months after announcing their union, agency staffs will finally be joined in slightly more than 20,000 square feet on Fifth Avenue in early December.
"The second major cost at an agency is real estate," said Interpublic Group of Cos. Chairman-CEO Phil Geier. "A real estate problem at an agency that isn't growing makes it difficult for them to pull their socks up."
Laurel Wentz and Charles Siler contributed to this story.