New York's Top Office Vacancies Jump 43% on Layoffs

http://www.bloomberg.com/apps/news?pid=20601103&sid=aicK14qdLbWQ New York's Top Office Vacancies Jump 43% on Layoffs (Update1) By David M. Levitt Oct. 7 (Bloomberg) -- The amount of prime New York City office space available for rent rose 43 percent in the third quarter from a year earlier, as Wall Street firms fired employees and sought tenants for space they no longer need. The vacancy rate... [more]

http://www.bloomberg.com/apps/news?pid=20601103&sid=aicK14qdLbWQ New York's Top Office Vacancies Jump 43% on Layoffs (Update1) By David M. Levitt Oct. 7 (Bloomberg) -- The amount of prime New York City office space available for rent rose 43 percent in the third quarter from a year earlier, as Wall Street firms fired employees and sought tenants for space they no longer need. The vacancy rate for so-called Class A space, offices with the most amenities and most modern infrastructure in locations such as Park Avenue or the Avenue of the Americas, has reached an ``inflection point,'' said Joseph Harbert, chief operating officer for the New York region at brokers Cushman & Wakefield, which issued a report today on the city's commercial real estate. ``We think asking rents are going down,'' Harbert told reporters at a briefing today. ``Taking rents have already gone down.'' (Taking rents are the rents actually paid by renters.) Manhattan's financial services industry had rented one out of every three square feet of space in the U.S.'s most expensive office market until this year, and its shrinkage will have an ``enormous impact,'' on the market, said Kenneth McCarthy, Cushman's managing director for New York research. Lehman Brothers Holdings Inc. declared bankruptcy, and Merrill Lynch & Co. agreed to be acquired by Bank of America, while the Dow Jones Industrial Average is down 13 percent through yesterday since Sept. 15, the day both firms announced those moves. Space Returning ``Certainly no one is in growth mode right now, except maybe bankruptcy lawyers,'' McCarthy said. ``And that means that the amount of space already coming back to the market has increased substantially and is likely to increase more.'' Vacancies for Class A space rose to 7.7 percent in Manhattan, up from 6.9 percent in the second quarter and 5.4 percent a year ago. There's 18.5 million square feet for rent, up from 12.9 million feet a year ago, according to Cushman statistics. The overall vacancy rate for Manhattan, including less-select B and C-class properties, was 7.4 percent, up from 7.1 percent in the second quarter and 5.7 percent a year ago. The last time the vacancy rate was this high was the second quarter of 2006, according to the report. Nationwide, the office vacancy rate reached 13.6 percent in the third quarter from 13.1 percent in the second quarter, according to a report released Monday by Reis, Inc. a New York- based provider of real estate data. ``We've moved, particularly in the past month, into a market where landlords are doing everything they can to try to make transactions happen,'' McCarthy said in an interview. ``If that means lowering rents or offering more concessions, they are willing to do it.'' Sublease Space Rises Of 29.2 million square feet available in the city, 6.6 million square feet, or 23 percent is sublease space, or space put on the market by tenants, rather than landlords. That's a 72 percent jump from the amount of sublease space available a year ago, the biggest jump in four years, according to the report. A rise in sublease space tends to depress rents, since tenants don't have the incentive to seek top dollar for their space as landlords do, McCarthy said. Among the biggest subleases currently available is Goldman Sachs Group Inc.'s 599,000 square feet at 77 Water St. in lower Manhattan, Lehman's 143,000 square feet at 399 Park Ave. in Midtown, and Royal Bank of Scotland Group Plc's 143,000 square feet at 7 World Trade Center, the only building at Ground Zero rebuilt after Sept. 11, 2001, according to Colliers ABR, a competitor of Cushman. Asking Rents Rise Average asking rents continued to rise, to $72.97 a square foot, up 1.9 percent since the second quarter. Asking rents, or rents that landlords advertise for space, don't reflect concessions landlords may make, including months of free rent or assumption of some improvement costs. Manhattan office rents have risen 85 percent since the fourth quarter of 2004, when they reached a post-Sept. 11 low of $39.55 a square foot. Rents in Midtown rose 0.6 percent to $84.48 a square foot; rents downtown rose 0.3 percent to $50.89 a square foot; rents in Midtown South, the area roughly between Canal and 34th streets, rose 1.9 percent to $54.23. Vacancy in Midtown rose to 7.8 percent, from 7.1 percent in the second quarter. In lower Manhattan, vacancy fell to 7.3 percent from 7.7 percent, and in Midtown South, vacancy rose to 6 percent from 5.9 percent. Colliers, in a report to be released today, said the ``saving grace'' in the New York market is the fact that very little new office space is being built in the city, with only 3.4 million square feet in a 443 million square-foot market expected to come on line next year. To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net. [less]