Wall Street Woes Take a Bite Out of Big Apple

New York City’s real estate market has enjoyed an astounding run in recent years, but the financial markets crisis is starting to take its toll. “I think what happened with JPMorgan Chase and Bear Stearns is a bellwether situation,” said Peter Hennessey, president of The Staubach Co.’s New York City metropolitan area office. The fallout from JPMorgan Chase’s agreement this week to buy troubled rival Bear Stearns will definitely ripple through the Manhattan office market. Assuming that about 7,000 Bear Stearns employees get pink slips, that would eventually return roughly 3 million square feet of space to the market, Hennessey estimated. Manhattan’s vacancy rate is still so low that even several million square feet will not necessarily influence the market by itself. Still, the effect of the expected Bear Stearns layoffs, combined with possible downsizing by other Wall Street giants, will likely have an impact. “I just think we’re going to see more if it, whether it’s from Lehman, JPMorgan Chase or Bear Stearns,” said Robert Sammons, director of research for Colliers ABR Inc.Wall Street’s doldrums are also likely to speed up trends that are already in progress. Sammons is projecting that asking rents for all classes of office building will decline by 5 percent this year. Vacancy could rise from 7.8 percent today to 10 to 12 percent by the end of the year. How tenants will handle their vacant space remains to be seen, however. Sammons speculated that some firms may mothball unused space rather than subleasing it at a discount. That strategy–which some firms used at the beginning of the decade during the city’s most recent downturn–allowed those tenants to avoid leasing space at a premium when the office market picked up. In what might appear to be a surprising move in the face of increasing vacancy, JP Morgan Chase still expects to move forward with plans for a 1.3 million-square-foot tower at the World Trade Center, according to a report by Tom Topousis in today’s New York Post. Other major New York City development projects are feeling the bite, however. Bruce Ratner, chairman & CEO of Forest City Ratner Cos., told the New York Times that the economic slowdown will delay the office and residential components of the $4 billion Atlantic Yards project in Downtown Brooklyn. According to a report by Charles Bagli in today’s edition, Ratner still expects construction to start this year on Barclays Center (pictured), a $950 million sports and entertainment venue that will be the new home for pro basketball’s Nets.