Reports that JPMorgan Chase's acquisition of Bear Stearns could put hundreds of thousands of sf on the market followed just a few days after Marcus & Millichap Real Estate Investment Services forecast a growth of 16,000 jobs citywide in 2008. "In normal circumstances, we'd be talking about net gain in job growth," says Edward Jordan, regional manager of Marcus & Millichap's Manhattan office. "On the other hand, if you look at some of the layoffs and consolidations that have been planned, there could very likely be another 2.5 million to three million sf of space available for sublet this year that not had not been anticipated."

Already this year, the availability rate in the Manhattan office market had risen slightly from 8.2% in January to 8.4% in February, with nearly 1 million sf added, according to the monthly market snapshot from Newmark Knight Frank. Along with freeing up large blocks of Midtown space, the Bear Stearns deal could jeopardize JPMorgan's plans to build a tower for its investment banking group on the site of the former Deutsche Bank building at 130 Liberty St. Instead, JPMorgan announced it would move the group into the Bear Stearns building at 383 Madison Ave.

Neil Goldmacher, executive vice president and principal at Newmark Knight Frank, says JPMorgan hasn't walked away from the site at 130 Liberty. "They consider it valuable expansion space," he says. Goldmacher adds, however, that the company is under no obligation to build at 130 Liberty, and "There would have to be a heck of an economic recovery to get them to build down there at this point."

In addition, Goldmacher points out that approximately 500,000 sf will became available at the US Trust Building at 114 W. 47th St. when Bank of America moves into its new headquarters at One Bryant Park later this year. The company will be vacating another 500,00-plus sf at 9 W. 57th St., and Goldmacher notes that this has not yet been listed as available. Published reports have also cited Goldman Sachs' plans to sublease 500,000 sf at 77 Water St. that the financial firm will no longer need when it moves into its new world headquarters next year.

The volume of space coming onto the market may affect Manhattan's availability rate, says Goldmacher. "I just don't know that it will affect it immediately and cause a spike." Although asking rents continued to rise during January and February, Goldmacher predicts that the increases will level off. "You'll see pricing come down, because the sublet space that comes to market will be at lower numbers. That will put downward pressure on pricing."

One aspect likely to see an impact, says Jordan, is pro forma rent growth. "A year ago, you would have been looking at a pro forma office rent growth of 12% to 14% year over year. Most people who are underwriting office product today are probably going to use a very conservative single-digit number when they're looking at rent growth for year one or beyond. That obviously affects the investment sales value of the asset, because what we're selling and buying is the probability of increasing income."

Jordan says he doesn't think that those who acquire office properties for income will be "stretching as aggressively" as they did a year ago. "They're going to be taking a much sharper pencil to the underwriting," he says. He notes that this is already being felt in the mid-priced range of office product, and will probably be seen "in the upper reaches of the A class product as well."

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.