Text Size

Email Post

Print Post

Comments (10)

Save Article

Manhattan, NY - The vacancy rate for top-class New York City office space rose to 7.7 percent in the third quarter, a 43 percent jump from the same period last year, as Wall Street firms laid off workers and sought tenants for space they no longer need.

The market, in which rents have continued to rise, has reached an ``inflection point,'' where rents will begin to fall, said Kenneth McCarthy, managing director for New York research at brokers Cushman & Wakefield, which issued a report on the city's real estate today.

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, McCarthy said. 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.

``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.

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.

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 73 percent jump from the amount of sublease space available a year ago.

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 downtown, according to Colliers ABR, a competitor of Cushman.

The 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- 9/11 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.