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United States News Title: Downtown Manhattan Office Vacancy Rate Hits a Six-Year High as Firms Move Downtown Manhattan’s office vacancy rate jumped in the third quarter to the highest level since 2004 as new space came on the market from financial companies, according to brokerage Cushman & Wakefield Inc. The vacancy rate climbed to 12.1 percent from 9.9 percent a year earlier, Cushman, the biggest closely held commercial property broker, said today in a statement. It was also 9.9 percent in the second quarter. Rents declined to $39.08 a square foot from $42.01 in the third quarter of 2009. The increased vacancies followed the addition of space at 85 Broad St., 1 New York Plaza and 70 Pine St., Cushman said. Goldman Sachs Group Inc. had offices at 85 Broad and 1 New York Plaza before moving into a new headquarters at 200 West St. The 70 Pine St. tower was formerly home to insurer American International Group Inc., which sold it last year. The rate increase “is reflecting the three additions,” Joseph Harbert, Cushman’s chief operating officer for the New York region, said at a press briefing. The vacancy increase is resulting in “some really good values downtown,” he said. The overall Manhattan office market has seen am uptick in real estate demand as companies emerge from the freeze in decision-making that followed the 2008 credit meltdown, Harbert said. Leasing is up 66 percent for the nine months ended Sept. 30 with 18.8 million square feet of deals -- more than in all of 2009, according to New York-based Cushman. Rents Decline Manhattan’s overall office vacancy rate was 10.9 percent in the third quarter, compared with 11.1 percent a year earlier and 10.8 percent in the previous three months. Rents dropped for the eighth straight quarter to $53.80 a square foot from $54.31 in the second quarter and $57.08 a year earlier. Some tenants are trying to lock in long-term leases during what is perceived as a market bottom, said Dale Schlather, a Cushman leasing broker based in Midtown. “There’s a lot of fear about politics and the government, taxes, what’s going to happen in the future,” he said. “We’re actually in a unique time, where it’s a great time to be a tenant, and there’s enough fear on the landlord’s side where you can make future deals.” Manhattan’s net-effective rents -- the price at which deals are being done -- are down 39 percent from their peak in the first quarter of 2008, according to Cushman, even as asking rents, or the rates landlords are advertising, are down 20 percent. Midtown Rates In Midtown, effective rents are down 42 percent, double the decline in asking rents, and downtown effective rents slid 30 percent while asking rents fell 22 percent. In Midtown South, the area between 30th and Canal streets, the declines were 36 percent for effective rents and 9.6 percent for asking rents. Cushman Vice Chairman Josh Kuriloff said he expects a “spike” in New York office rents in the next 24 to 36 months, as office-using job growth continues and new office building construction remains near historic lows, creating “a huge constraint on supply.” “The psychology is very different from what the statistics are demonstrating,” Kuriloff said. “We are anticipating a lot of demand. That’s what the investor market is anticipating. That’s how buildings are being purchased.” Downtown brokers said they are seeing high demand for the space vacated by Goldman and AIG. The rise in vacancies isn’t hurting demand for new offices being built at the World Trade Center or the space Bank of America may give up when its 4.6 million-square-foot Merrill Lynch lease expires at Brookfield Office Properties’ World Financial Center in 2013, they said. “Buildings that are early and late postwar will continue to be low-cost alternatives for companies that can’t afford Midtown,” said Andrew Peretz, a leasing broker based in lower Manhattan. To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net
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