NYC Office Market Offers Few Pleasant Surprises in Year’s First Quarter

The returns are beginning to come in on the early 2009 performance of the nation’s largest office market, and the picture emerging is neither rosy nor especially surprising. A chief culprit is the steady stream of job losses. In February alone, New York City employers shed 17,500 positions, according to data provided by New York State and seasonally adjusted by Eastern Consolidated. That brought the number of jobs cut in the city since last August to 97,000. The securities sector is the hardest hit category, having lost 3,100 positions in February and 14,800 jobs overall. However, a wide range of other industries have lost at least 3,000 jobs since last August, including construction, manufacturing, retail, employment, restaurants, accounting and banking. The shrinkage of the city’s employment base is having a dramatic impact on multiple office categories. During the first quarter, only four deals larger than 100,000 square feet were completed in Manhattan, down from 17 large office leases inked during the same period of 2008, Jones Lang LaSalle Inc. reported. Class A office vacancy in Manhattan reached 11.9 percent in the first quarter, a 55 percent jump since the first quarter of 2008. Class B vacancy rose 43 percent year-over-year to reach an identical 11.9 percent. In other trends: • In Midtown Manhattan, Class A buildings are especially hard hit. Vacancy for the category stands at 13.5 percent only a year after registering a 7.9 percent rate in the first quarter of 2008. • Average asking rents for all office classes in Midtown declined 11 percent year-over-year to about $73 per square foot. Class A rates dipped about 12 percent year-over-year, landing at about $82 per square foot in the first quarter, according to Jones Lang LaSalle. • Downtown Manhattan’s office market is experiencing some slippage but continues to fare relatively well compared to Midtown. Despite a 300 basis-point increase during the past 12 months, vacancy for Class A Downtown office space is still only 8.2 percent. The overall vacancy rate for all classes of Downtown office space is 10.3 percent, 35 percent higher than the first quarter of 2008 last year.• On the investment side, foreign investors filled some of the gap left last year when most other buyers stayed on the sidelines. Fifty-one percent of buyers acquiring Manhattan office assets were based outside the United States, a considerable increase from the 20 percent typical of the past few years, according to CB Richard Ellis Inc. • Office sales volume declined 69 percent in 2008, finishing the year at $12.1 billion. The decline was especially steep during the fourth quarter. Only $763 million worth of assets traded in the final three months of the year–an 82 percent decline from the five-year quarterly average of $4.2 billion, CB Richard Ellis reported.