Too Early to Put Manhattan Office Market in the Tank: CBRE

Manhattan’s office market is coming back down from the stratosphere, but reports of an impending crash are greatly exaggerated, top executives from CB Richard Ellis Inc. argued at a morning briefing today. “Right now, there’s a perception that this market is dead or dying, and that’s not true,” declared Stephen Siegel, chairman of global brokerage for CBRE. Although leasing velocity is undoubtedly slowing, major tenants are signing leases. He cited a 260,000-square-foot renewal and expansion by Macquarie Group, the Australian financial services concern, at 125 West 55th St. in Midtown. Details were confirmed yesterday in a press release issued by Cushman & Wakefield Inc., which represented Macquarie in negotiations with owner Boston Properties Inc. Siegel ticked off other high-profile tenants who have either recently signed deals for big blocks of space in Manhattan or are thought to be in the hunt: NBC, the National Basketball Association, the National Football League and the global law firm Orrick, Herrington & Sutcliffe L.L.P. Siegel argued that the recent diversification of Manhattan’s economy will help the office market as financial services companies reorganize and adjust to new space needs. Such industries as media, entertainment, advertising and technology will continue to create demand, Siegel argued. Many of Manhattan’s top landlords are in sound enough shape financially that they can ride out current conditions. CB Richard Ellis’ research concluded that 80 percent of Manhattan’s top 65 office owners used less than 75 percent leverage to buy or refinance their properties. That will give owners the flexibility to temporarily leave space vacant rather than leasing it at a big discount and driving down prices. Although the demise of former Wall Street pillars like Bear, Stearns & Co. and Lehman Brothers Holdings Inc. will return space to the market, the potential impact of layoffs in the financial sector and other industries must be seen in context, said Simon Wasserberger, senior vice president of CBRE’s New York City metropolitan regional consulting group. Tenants take a more sophisticated approach to subleasing space today than they did in previous decades, Wasserberger pointed out. For example, some firms prefer to retain unused space during a downturn because they may want it again in a few years when business improves and they want to expand.Wasserberger also offered different scenarios for how layoffs would affect vacancy and pricing. If Manhattan were to shed 97,000 office jobs, vacancy would still reach only 9.6 percent, Wasserberger said. In a worst-case scenario of 145,000 lost office jobs, vacancy would hit 12.5 percent by 2011. And the trends of three previous major recessions dating back to 1970 suggest that those layoffs would eventually drive down average asking rents in Manhattan by 26 percent over the next three years, to $52.33. Although that would be consistent with historic trends, Siegel expressed skepticism that job losses in Manhattan’s financial sector would be enough to push office-sector layoffs to the worst-case total.