New York Office Vacancies Bottoming?

Bloomberg’s David M. Levitt reported on the latest study of Manhattan real estate. The analysis conducted by real estate brokerage firm Cushman & Wakefield shows that Manhattan has 38% more office space for lease than a year ago. The past year appears shockingly bad, but could have been worse as the market actually took a turn for the better in the late part of 2009. The report tells of stabilization thanks to more signed leases and renewed leases as businesses took advantage of rent offered at 20% lower rates on average. Office vacancy rates stayed at 11.1% for the third and fourth quarters of 2009, down from a peak vacancy rate of 11.4%.

Manhattan is at the heart of many industries including banking, media, fashion and more and is obviously an important indicator for the national real estate market. The concentrated nature of business activity in the area makes us view it as a microcosm of urban real estate, although it is still the most expensive real estate market. The recession, which has been particularly challenging to financial firms, has likely claimed many tens of thousands of jobs in the New York area and is clearly the reason for the rise in vacancy rates.

Available space totaled 43.8 million square feet, or 11 percent of Manhattan’s 393 million square feet of offices, at the end of 2009, the New York-based brokerage said today in a report. The vacancies, equivalent to more than 15 1/2 Empire State Buildings, are the highest since the third quarter of 2004, Cushman said.

“We’re calling this close to the bottom,” said Joseph Harbert, Cushman’s chief operating officer for the New York region. “Rents will go down a bit from here, vacancies will go up a bit, but you won’t see any dramatic movements on either of those fronts in the next nine months.” — Bloomberg 1/12/2010

Commercial real estate is considered a lagging indicator, so the stabilization in Manhattan simply serves to confirm a broader recovery. This also may suggest for at least some businesses hiring could be on the horizon. According to the New York State Dept. of Labor, New York City’s unemployment rate dropped to 10% in November which is not far from the national average and a meaningful improvement from the 10.3% rate the month earlier (a 16-year high for the city).

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