Financial Fallout Will Impact NYC Office Market
- Sep 18, 2008
The developments at Lehman Brothers, Merrill Lynch and AIG will have their biggest impact on available sublease space, according to a Grubb & Ellis Co. report authored by research manager Richard Persichetti. And as there are other failures, acquisitions and consolidations already discussed or rumored, there is sure to be continued pressure driving vacancy rates up and rent prices down. Lehman Brothers and Merrill Lynch alone occupy approximately 6 million square feet in Manhattan. Persichetti told CPN that the forecast doesn’t change based on today’s developments with the troubled firms.The additional sublease space will increase options for tenants and inevitably drive vacancy higher. At 5.7 percent, the Manhattan vacancy rate is already up 120 basis points since 2007. Since the start of 2008, 2.1 million square feet of sublease space has been placed on the market, and that number is expected to grow as the fall-out from the credit market turmoil continues. The growing sublease inventory will likely cause asking rents to decrease in the last quarter of this year and into 2009. One should “expect overall average asking rents to decline by approximately 7 percent over the next 12 months,” according to the report.In August, the increase in marketed subleases altered the ratio of direct versus sublet available space. Sublease space now accounts for 25 percent of the market’s availability rate, compared to the 22 percent market share averaged over the last 19 months. New York Governor David Paterson, has stated that an additional 40,000 Wall Street job cuts could occur. Such losses would “translate into approximately nine to ten million square feet of occupied office space, which if placed on the market would increase the vacancy level to 8.5 to 9.0 percent,” the study projects.