Lehman's Crash Sparks Further Slump Concerns

NEW YORK CITY-The peak of more than one year of financial crisis resulting from bad mortgages and real estate investments materialized this weekend as locally based Lehman Brothers filed for bankruptcy , and as Bank of America revealed it would pay around $50 billion to acquire Merrill Lynch. Although there are still some questions as to how layoffs will occur, and how it could affect the broader economy , sources tell GlobeSt.com that the office leasing market here will soften.

According to a Jones Lang LaSalle forecast, looking at the situation with Lehman and depending upon if all or none of the space is added to the market, if there is 100% of disposition, roughly 2.7 million sf will be added to the market resulting in a potential Q1 ’09 midtown class A vacancy rate of 12.1%. The forecast already assumes more than 15,000 in job losses prior to recent announcements. If there is a 75% disposition, a little more than two million sf will be added to the market resulting in a potential vacancy rate of 11.7%. If there is 50% of disposition, about 1.3 million sf will be added to the market leading to a vacancy rate of 11.3%. If there is 25%, roughly 673,345 sf will be added to the market, pushing a potential vacancy rate to 10.8%.

Hugh Finnegan, an attorney in the real estate group at Sullivan & Worcester LLP, tells GlobeSt.com that the result of financial industry failure in Manhattan will most definitely have an effect on the office leasing market here. “The leasing market will soften,” he says. “There will be a lot vacancies created wherever Lehman has large chunks of space.” Merrill Lynch reportedly has approximately 60,000 employees, and Lehman has more than 20,000. Finnegan says that as for the firm’s 32-story Midtown office building–said to be worth north of $1 billion–”is valuable, even if vacant, so I doubt there will be a foreclosure.”