Manhattan office vacancies spike to 4-1/2 yr high
By Ilaina Jonas
NEW YORK, July 14 (Reuters) - The vacancy rate for offices in Manhattan reached 10.5 percent in the second quarter and could rise as high as 15.5 percent in a year, as companies continue to shed jobs or hold back expansion plans, commercial real estate firm Cushman & Wakefield said on Tuesday.
The overall vacancy rate -- which includes space that will become available over the next six months -- rose 0.9 percentage point from the first quarter to 10.5 percent, the highest rate since the fourth quarter 2004, when it touched 11 percent. It was the same as a month ago and the first time since the second quarter 2007 that the rate didn't rise.
"We don't know if June represents an anomaly or an inflection point," Joseph Harbert said during the company's quarterly presentation. "Two months don't make a trend."
The availability rate, which includes space available within the next 12 months, rose a full percentage point to 11.5 percent in the second quarter.
The collapse of some of the biggest financial firms, such as Bear Stearns and Lehman Brothers Holdings Inc (LEHMQ.PK), and the hobbling of others have battered New York City's employment.
The recession has claimed about 117,400 jobs, of which 59,000 were held by office workers, Cushman said.
The market is suffering from a vast increase in space available for leasing and a plunge in demand for it.
The amount of space available to lease rose to 41.2 million square feet, the most in four-and-a-half years, as companies returned unneeded leased space to the market. About 3.7 million square feet of space were returned in the quarter, about 2 million square feet less than the 5.7 million square feet in the prior quarter, but still a substantial amount.
Meanwhile leasing remained weak. By midyear, only 6.3 million square feet were leased, compared with 11.5 million square feet a year earlier.
The mismatch has sent rental rates plummeting. Asking rent in the second quarter fell to $60.23 per square foot, down 15.9 percent from a year ago, Cushman said.
Factoring in months of free rent and work space improvements, effective rent in Manhattan already is off 44 percent from the peak in the first quarter 2008.
Cushman & Wakefield sees Manhattan office employment dropping by another 60,000 to 80,000 jobs by the second half of 2010 and asking rent continuing to fall another 15 percent for a for a total decline of 25 percent to 30 percent.
Asking rent for Midtown Class A properties -- those most desirous -- has already fallen by 23 percent. Cushman & Wakefield expects those rents to drop the most drastically as they increased the most during the recent boom years.
Most of the decline in effective rent may have already happened, Cushman & Wakefield said. It expects modest declines in effective rent over the next two or three quarters.
That could translate into lower rents for most of the big Manhattan landlords such as SL Green Realty Corp (SLG.N), Vornado Realty Trust (VNO.N), Boston Properties Inc (BXP.N) and Brookfield Properties Corp (BPO.TO).
Meanwhile, the once red hot market for Manhattan office buildings is stone cold, as debt financing -- the lifeblood of deals -- remains tight.
Sales or sales under contract for property valued at $10 million or higher totaled $2.5 billion in the first half of 2009, compared with $13.8 billion in 2008. (Reporting by Ilaina Jonas; Editing by Steve Orlofsky)
