[IMGCAP(4)]Siegel and Simon Wasserberger, SVP of CBRE's New York tri-state region consulting group, cited a number of factors they see as mitigating against a steep decline in asking rents. One is the increased desirability of New York City as a place to live, by comparison to the city's liveability in previous downturns going back to the 1970s. Another is the financial solidity of Manhattan's 65 top landlords, most of whom acquired or refinanced their assets with less than 75% leverage. "If you have a one-million-sf building and 20,000 sf is vacant, you'll ride it out" rather than lower asking rents to fill the space, Siegel said.

Still another, Wasserberger said, is the fact that layoffs do not automatically lead to space being given back or subleased. For example, he said, following the bankruptcy of Lehman Brothers and the sale of most of its assets to Barclays Capital, very little of the investment bank's office space went on the market. Moreover, tenants who downsize may hang on to their unused space, because consolidating that space can be costly, and so can taking out new leases when companies are again in hiring mode. "You can't sublease a vacant desk," said Wasserberger.

At C&W's quarterly press event on Tuesday, the presenters made it clear that turmoil nationwide was taking its toll here. "You cannot talk about real estate without talking about the economy," said Harbert, COO of C&W's New York metro region. Ken McCarthy, C&W's managing director for the New York area, noted that of the 760,000 layoffs across the US so far this year, 400,000 represent office-using jobs. "This is a white-collar recession," said McCarthy, adding that while the effect hasn't shown up yet in Manhattan statistics, it soon will.

Harbert noted that YTD leasing activity, 15.7 million sf, is the lowest since 2003's 12-month total of 20.1 million sf. On the other hand, the market is on pace to exceed last year's total of 30 deals for spaces of 100,000 sf or more: there have been 28 such deals in the first three quarters of 2008. At the same time, he said, there has been "some healthy velocity" in small leases.

Vacancy rates are up year-over-year in all three Manhattan submarkets, Harbert said. In Midtown, all neighborhoods aside from the Grand Central district and the West Side saw lower leasing velocity in the quarter, he said. Nonetheless, JLL's report noted that Grand Central and Columbus Circle, Downtown escaped a vacancy increase over the second quarter only because a building slated for office space was turned to residential use instead. Negative absorption of Manhattan's office space rose from 468,091 sf 12 months ago to 2.9 million sf today, C&W reported.

An overall drop in asking rents is still in the future, Harbert said, although he noted that they've already started to decline in some neighborhoods, while taking rents have already started to dip. "We're headed toward a tenant's market," he said.

JLL's report says that asking rents overall have started to decline, driven largely by "lackluster activity" Downtown. For his part, Persichetti, research manager for Grubb & Ellis' New York region, reported that class A direct average asking rents in Midtown have declined for two consecutive quarters, reaching $89.46 per sf at the end of Q3. In Downtown, class A rents slipped 1% to $54.61 from $55.16 per sf at midyear, he reported.

"With announcements of layoffs and consolidations throughout all industries and the New York City unemployment rate reaching a three-year high of 5.8% in August, uncertainty in the real estate market is afoot," wrote Persichetti. "But the shift will also bring opportunity for savvy tenants."