Manhattan office market vacancy at five-year high

* Effective rent off 45 percent

* Vacancy tops 11 percent

By Ilaina Jonas

NEW YORK, Oct 6 (Reuters) - The Manhattan office market
vacancy rate in the third quarter rose to 11.1 percent, the
highest level in five years, and is expected to rise even
further, according to real estate services company Cushman &
Wakefield Inc.

Manhattan's overall availability rate -- which includes
space available within the next 12 months -- rose to 12.1
percent, up from 11.5 percent at the end of the second quarter,
Cushman & Wakefield said on Tuesday. The vacancy rate rose 0.6
percentage point from the second quarter,

The real estate firm expects the vacancy rate to top out
between 13 and 14 percent, said Joseph Harbert, chief operating
officer of Cushman & Wakefield's New York Metro Region.

The recession and rising unemployment have taken a toll on
the Manhattan office market, which has taken a precipitous fall
since Lehman Brothers filed for bankruptcy last year.

So far, New York has lost 80,000 office jobs over the past
18 months, said Kenneth McCarthy, managing director of research
for the New York Metro Region of Cushman & Wakefield.

Year-to-date leasing activity for Manhattan office space
was off 27.8 percent from a year ago to 11.3 million square
feet. About 4.9 million of that was leased in the third
quarter.

Roughly 25 million square feet of office space is leased in
a typical year. Cushman & Wakefield expects just 15 million to
16 million square feet to be leased in 2009.

Overall, the average asking rent for Manhattan continued to
slide, reaching $57.08 per square foot at the end of the third
quarter, a 5.2 percent or $3.15 decrease from $60.23 per square
foot at midyear 2009. Compared with a year earlier, asking rent
is off 21.8 percent or $15.89.

Factoring in free improvements and months free rent, the
rent decline was even worse for landlords. For example, while
rent in the most desirable midtown office buildings is down
20.2 percent from the first quarter 2008 through the third
quarter 2009, net effective rent was off 45 percent.

Cushman believes that Midtown Class A asking rents
eventually will decline by 35 percent.

The deteriorating market presents a challenge to even the
biggest players in Manhattan, such as SL Green Realty Corp
(SLG.N), Boston Properties (BXP.N), Brookfield Properties
(BPO.TO) and Vornado Realty Trust (VNO.N).

Manhattan's once-torrid property sales market remained
cool. Property sales closed for transactions priced at $10
million and higher totaled $2.7 billion at the end of the third
quarter 2009, and are running about 87 percent lower than the
five-year average of sales from 2004 through 2008.
(Reporting by Ilaina Jonas, editing by Matthew Lewis)