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Manhattan Office Leasing Vacancy Rate Down to 11.1%. Has The Bottom Been Reached?

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Jan. 12 (Bloomberg) -- Manhattan has 38 percent more office space for rent than a year ago as Wall Street job cuts and a weak economy reduced demand, Cushman & Wakefield Inc. said. The vacancy rate in the fourth quarter was unchanged from the third.

Available space totaled 43.8 million square feet at the end of 2009, compared with 31.8 million a year earlier, the New York-based brokerage said today in a report. That’s equivalent to 11.1 percent of Manhattan’s office space, the same as at the end of September, according to Cushman.

“We’re calling this close to the bottom,” said Joseph Harbert, Cushman’s chief operating officer for the New York region. “Rents will go down a bit from here, vacancies will go up a bit, but you won’t see any dramatic movements on either of those fronts in the next nine months.”

New York has lost about 40,000 financial services jobs in the past two years, according to the city’s Independent Budget Office. Earnings for the top 10 largest U.S. banks recovered in 2009 after the companies lost a total of $27 billion in the fourth quarter of 2008. Analysts estimate they will report a combined $3.84 billion profit for the fourth quarter of 2009.

In the second half of 2009, new leases were signed on 9.9 million square feet of space, compared with 6.4 million in the first half, according to Cushman. There were 10 leases for more than 100,000 square feet in the fourth quarter, twice the number from the same period of 2008.

Vacancy Rate

The office vacancy rate declined for two straight months after rising to 11.4 percent at the end of October, Cushman said. The rate was 8 percent at the end of 2008.

Asking rents in Manhattan averaged $55.52 a square foot at yearend, down 20 percent from December 2008.

Sublease space, or surplus offices marketed by tenants rather than landlords, rose to 10.6 million square feet from 8.2 million square feet at the end of 2008. It was down from a peak of 11.4 million at midyear. High sublease availability tends to depress rents because tenants have less incentive to seek top dollar for the space.

“The wholesale dumping of space is over, and has been over for some period of time,” Harbert said. “At some point we’re going to go back to recognizing we live in a space-constrained city.”

Midtown Rents

Asking rents in Midtown Manhattan fell 22.5 percent to an average of $61.82 a square foot, Cushman said. The vacancy rate was 12 percent, up from 8.5 percent a year ago and little changed from the third quarter.

So-called taking rents among Midtown Manhattan’s Class A buildings, the top-quality space, have fallen 42 percent to $52 a square foot since the first quarter of last year. They climbed from $50 a foot in the third quarter, the first sequential rise in at least two years. The increase may be another sign of the market bottoming, Harbert said.

Asking rents are the rents landlords advertise; taking rents are based on the terms of signed leases. They tend to be lower because they include concessions including contributions to interior construction costs and periods of free rent.

Lower Manhattan rents averaged $40.36 a foot, down 15.7 percent from a year earlier. Vacancy was 9.6 percent, down from 9.9 percent in the third quarter.

The area’s vacancy rate may rise to as high as 14 percent in the next 15 months, in part because of Goldman Sachs Group Inc.’s plan to move its headquarters to a new skyscraper in Battery Park City from 85 Broad St. and other downtown buildings, Harbert said.

In Midtown South, roughly the area between 34th and Canal streets, rents dropped 12.8 percent from a year earlier to $47.17 a foot. Vacancy was 10 percent, up from 7.1 percent a year earlier and 9.4 percent in the third quarter.

To contact the reporter on this story: David M. Levitt in New York at

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