Banks Vacate Towers Pushing Empty NYC Space to Record (Update2) By David M. Levitt Feb. 26 (Bloomberg) -- New York’s biggest banks and securities firms may relinquish 8 million square feet of office space this year, deepening the worst commercial property slump in more than a decade as they abandon a record amount of property. JPMorgan Chase & Co., Citigroup Inc., bankrupt Lehman Brothers Holdings Inc. and industry rivals have vacated 4.6 million feet, a figure that may climb by another 4 million as businesses leave or sublet space they no longer need, according to CB Richard Ellis Group Inc., the largest commercial property broker. Banks, brokers and insurers have fired more than 177,000 employees in the Americas as the recession and credit crisis battered balance sheets. Financial services firms occupy about a quarter of Manhattan’s 362 million square feet of office space and account for almost 40 percent now available for sublease, CB Richard Ellis data show. “Entire segments of the industry are gone,” said Marisa Di Natale, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “We’re talking about the end of 2012 before things actually start to turn up again for the New York office market.” The amount of available space may reach 15.6 percent by the end of the year, the most since 1996, according to Los Angeles- based CB Richard Ellis. Vacancies are already the highest since 2004 and rents are down 5 percent, the biggest drop in at least two decades. Financial Center Lease In 2003, the city had 14.8 million square feet available for sublease. If financial firms give up as much as CB Richard Ellis expects, that record will be broken. CB Richard Ellis’s figures don’t include any space Bank of America may relinquish at the World Financial Center in lower Manhattan, where Merrill Lynch & Co., the securities firm it acquired last month, occupies 2.8 million square feet. Brookfield Properties Inc., the second-biggest owner of U.S. office buildings by square footage, owns the Financial Center. Merrill “is a wild card right now,” said Robert Stella, principal at Boston-based real estate brokerage CresaPartners. Manhattan’s availability rate -- vacancies plus occupied space that is on the market -- was 12.3 percent at the end of January, up more than 50 percent compared with a year earlier and almost 9 percent from December, according to CB Richard Ellis. Record Broken? Office availability in New York peaked in the fourth quarter of 1992, toward the end of the last commercial real estate recession, at 18 percent, or almost 60 million square feet in a 332 million square-foot market. CB Richard Ellis data only goes back to 1992. There are now 45 million square feet of offices available in Manhattan, according to the brokerage. The firm projects another 15.6 million square feet, or 4.3 percent of the total market, could become vacant by the end of the year if current job cut projections hold. That would threaten the 1992 record. Commercial real estate prices dropped almost 15 percent last year, more than U.S. house prices, Moody’s Investors Service said in a Feb. 19 report. The decline returned values to 2005 levels, according to the Moody’s/REAL Commercial Property Price Indexes. REIT Stocks Fall The Bloomberg Office REIT Index fell 25 percent since the start of January, with SL Green Realty, the biggest owner of Manhattan skyscrapers, slumping 50 percent. Vornado Realty Trust, whose buildings include One and Two Penn Plaza in Midtown, has fallen 36 percent. SL Green of New York gets 41 percent of its revenue from financial firms, including 13 percent from Citigroup, according to its Web site. Bank of America plans to give up 530,000 square feet at 9 West 57th St. as it completes a move to 1 Bryant Park. New York- based Goldman Sachs Group Inc. is leaving 1.3 million square feet of offices at 1 New York Plaza and 77 Water St. as it prepares to move to new headquarters near the World Trade Center site. JPMorgan put 320,000 square feet of Park Avenue offices on the market after scooping up rival Bear Stearns Cos. last year along with the company’s 45-story headquarters tower at 383 Madison Ave. Citigroup has put 11 floors, or 326,000 square feet, on the market at the 59-story Citigroup Center at Lexington Avenue and 53rd Street, bank spokesman Jon Diatsaid in an e-mail. The tower is owned by Mortimer Zuckerman’s Boston Properties Inc. Moving Out “We’ve been having conversations for two and a half years with Citigroup, and it’s been very clear to us that for the right economic transaction, they would move out of virtually any space in midtown Manhattan that they have,” Boston Properties President Douglas Linde said on a conference call last month. Boston Properties is also expecting to receive about 490,000 square feet back from Lehman Brothers at 399 Park Ave. as part of the bank’s liquidation. That space “will be a monumental challenge” to fill, said Michael Knott, senior analyst at Newport Beach, California-based Green Street Advisors. “They’re going to have to really bend over backwards on rate, or make the strategic decision to sit on it for an extended period of time.” Zuckerman said in an interview he doesn’t expect the increase in sublets to be a long-term problem for landlords. “You’re not going to be able to get for the space what you were able to get a year ago,” he said. “But in a year or two, in my judgment, the space will be absorbed.” Landlords must be prepared for a slow recovery, said Di Natale of Moody’s Economy.com. Commercial vacancy rates climbed for almost a year and a half after the last recession ended in late 2001. Still, CB Richard Ellis Tri-State Chairman Robert Alexander said New York’s financial community will regenerate. “In the late ‘80s, we lost Drexel Burnham Lambert and we lost Salomon Brothers,’’ Alexander said. ‘‘New York City survived.’’ To contact the reporter on this story: David M. Levitt in New York atdlevitt@bloomberg.net.
Friday, 27 February 2009
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