Office: Statistics Start Reflecting Rest of US

The effects of the down economy have begun to be reflected in Manhattan’s office market, as statistics from newly issued reports show a rise in availability, a dip in asking rents and a dropoff in leasing velocity.

A Studley Q2 report notes that rental rates inched downward by 2.2% to $69.29, marking the first decline since 2005, while availability jumped to 8.2%. “Manhattan’s office market is not impervious to Wall Street’s malaise,” says Steve Coutts, Studley’s SVP of national research services, in a prepared release. “Layoffs in the financial sector have fueled speculation about the amount of sublet space that would come onto the market and to what extent rents would decline. But during the first half of 2008, the proverbial axe fell, resulting in sublet space that spiked to 7.8 million sf from 6.2 million sf in January, and closed at 8.3 million sf in June.”

According to a report from Banc of America Securities, which hosted a conference call in July with Scott Latham, EVP with Cushman & Wakefield Capital Markets, “Manhattan fundamentals appear to be losing their momentum as vacancies approached frictional levels (7% to 9%), rising 100 basis points quarter over quarter to 7.1%.” Although asking rents increased 6.6% from Q1 ’08 to $71.59, Latham said in the July 18 conference call that he expects rental rates will stabilize or possibly decline over the course of the year. “Net effective rents are declining as free rent (up by one to two months) and tenant improvements (up $5 to $10 per sf) have risen.” Studley’s reports notes that in many Manhattan submarkets, sublet space now comprises more than 25% of what’s available.