Over the past 30 days, retail vacancies have increased 18.67 % and office vacancies have increased 1.36%, this should trigger rents to continue to fall and landlord concessions to increase.

New York Market Overview:

Just one month after declines in rents in Midtown seemed to be leveling off, the average asking rents in October fell sharply as vacancies rose by their largest amount in nearly a year. The average asking rent in Midtown fell by 99 cents per square foot to $56.89 per square foot, while the vacancy rate rose by .7 points to 10.3 percent. In September, the average asking rent in Midtown declined by just 6 cents per square foot, to $57.88 per foot. However that price support did not continue last month. The price decline in Midtown was the largest since August when it fell $1.46 per square foot. The increase in vacancy is the largest since December 2008, when the rate rose 1 point to 7.6 percent from 6.6 percent a month earlier. The weakness was not as pronounced in Manhattan overall. The average asking rent fell by 88 cents per square foot from September to October, and the vacancy rate rose by .5 points to 9.8 percent. Several indicators showed a weakened industrial real estate sector in the third quarter of 2009. The country's industrial vacancy rate reached 10.3 percent at the end of the third quarter, its highest in 15 years and a 2.2 percent rise over 2008, while industrial space under construction fell to 15.2 million square feet, its lowest quarterly total since 1995. The drought in new construction activity may lessen the pace of soaring vacancy rates. Overall leasing activity in the industrial sector also fell to 169.5 million square feet so far this year, an 18.8 percent decline from this time in 2008. The vacancy rate for Midtown office buildings hit its highest level in more than 15 years last month, in part by several large blocks of space that were placed on the market. Overall Manhattan was mixed, showing some strength in the Midtown South market where the vacancy rate declined modestly and prices rose for Class A office space. The Midtown vacancy reached 14 percent, its highest level since March 1994 when the rate reached 14.1 percent. Asking rents also fared poorly in the district, falling 1.2 percent to $58.16 per square foot. In a positive sign, the vacancy rate for all classes of buildings in Midtown South fell .1 points to 14.1 percent and the average price for Class A office space rose by $1.36 per square foot to $50.88 per foot. But for all classes of buildings, the average asking rent fell by $0.48 per foot to $39.88 per square foot.

Total Manhattan Class A Office vacancies decreased from 8.4 % vacant to 8.3 % vacant. Total New York City Office vacancy stayed at 7.6 % vacant. Total Available New York City Retail Space increased from 1.02 million SF to 1.07 million SF.

The amount of free rent that landlords are offering to entice reluctant tenants to sign contracts has hit record levels in the current downturn, despite the fact that asking rents have started to stabilize in parts of the Manhattan leasing market. In the third quarter, two Midtown leases were signed with 17 and 18 months of free rent, double the average of eight and a half months. Even longer rent-free periods were being negotiated. Average asking rents are now down 29 percent from the peak of $71.92 per square foot in July 2008.

New Developments

Commercial lenders did not throw out all of their standards in the recent cycle of easy credit. When developer Aby Rosen structured his $133 million loan for the acquisition and development of the Shangri-La hotel at 614 Lexington Avenue in 2007, the mortgage document included a personal guaranty to cover losses in the event of a default. Similarly, when Kent Swig negotiated $49 million in loans with Lehman Brothers Holdings to develop a hotel and condo project at 45 Broad Street in the Financial District in 2006 and 2007, the bank demanded a similar guaranty in the mortgage documents. And other big-time borrowers such as developer Yair Levy and investor Steven Elghanayan have made the same types of commitments to convince banks to make loans on their projects.

The former Drake Hotel at the corner of Park Avenue and 56th Street is sitting empty, two years after developer Harry Macklowe defaulted on the loan that would have allowed him to build up the spot. But, even as Macklowe sold off the prime General Motors Building on the corner of Fifth Avenue and 59th Street, the group is still determined to hang onto the former spot of the Drake Hotel. Deutsche Bank filed a suit for foreclosure on the property in August 2008, and Macklowe is angling for a comeback on the property. The development group paid $520 per square foot for the air rights for eight surrounding townhouses, a record rate, so that he won't be restricted in the height of his new development.

New York's real estate market is at a crossroad. For more than a year now, the industry has been dealing with the fallout from Wall Street and the credit crisis, leaving brokers, developers, city officials and everyone in between, often groping for strategies to keep financially afloat.

With commercial property values spiraling downward, foreign investors are looking to inject capital into Manhattan's premier buildings, but some say they're too eager for their own good. There's not enough product to go around, and foreigners are having trouble securing bids on properties, or even getting their calls returned. Nonetheless, many foreign investors are succeeding in their efforts, and benefiting from exchange rates to boot. Recently, Joseph Cayre partnered with Israeli IDB Associates in purchasing 452 Fifth Avenue from HSBC at $400 per foot, and another Israeli company, Gilmore and Optibase, is acquiring 485 Lexington Avenue at $560 per foot. The Middle Eastern Safra family is in talks to buy a 49 percent interest in 299 Park Avenue, and the Italian Sorgente Group purchased a piece of the Flatiron Building.

Commercial property prices jumped by more than 4 percent in the third quarter. The figures marked the largest quarterly increase in more than two years, and the first jump in real estate prices in a year. Market conditions may have allowed commercial real estate to finally hit a bottom. Although, one quarter does not a trend make, we are still well below normal trading volume. Many in the industry don't expect commercial real estate to rebound in the near future.

A new theater from ballet dancer Mikhail Baryshnikov's arts facility will open in February 2010. The Jerome Robbins Theater will be housed in the 37 ARTS Building at 450 West 37th Street, the same building that houses the Baryshnikov Arts Center. The theater anticipates being granted LEED certification for its pledge to use recycled materials.

A rendering of the canopies at Lincoln Center Lincoln Center's David H. Koch Theater has reopened, after a complete interior renovation designed by JCJ Architecture. A $100 million grant helped fund the redesign of the 2,544-seat theater, which now includes a levitating orchestra pit, new seating arrangements and upgrades to the theater's acoustics.

Another eco-conscious food emporium is opening in Chelsea. Trader Joe's will be heading to the Mattel Building at 675 Sixth Avenue on the corner of 22nd Street. The all-natural grocery store has just signed a lease for the former Barnes & Noble spot, which is 41,000 square feet and had an asking price of $200 per square foot.

New York's real estate market is at something of a crossroad. For more than a year now, the industry has been dealing with the fallout from Wall Street and the credit crisis, leaving brokers, developers, city officials and everyone in between groping for strategies to keep financially afloat. While it's hard to fault real estate professionals for throwing any ideas they have at the problem to see which ones stick, some of those approaches have worked better than others.

Kohl's Department Store may come to Manhattan, and the company is looking at the first five floors of Joseph Moinian's 1775 Broadway tower at Columbus Circle for its new space. The building's lights are to go out by Nov. 16, unless Moinian pays the overdue electric bill. Moinian bought the building for $130 million in 1999, and is straining to keep up with loan payments on the 26-story property, which are expected to increase by 23 percent early next year. Moinian could lose the building if he doesn't land a major tenant. Moinian already lost 475 Fifth Avenue to Barclays Capital, and has said he will default on loans at 180 Maiden Lane and 17 Battery Place North.

As long as the price of a barrel of oil stays at $70 or above, Russians will keep investing in high-profile American real estate. While most Russian investors are interested in major resort areas like the Hamptons and Vail, Colorado, they are also starting to look at distressed assets and commercial properties in Manhattan. They are more interested in high-profile transactions like Class A properties in major cities.

The Landmarks Preservation Commission voted to protect the B.F. Goodrich Building at 1780 Broadway between 58th and 57th streets in Midtown. The 12-story building was landmarked. The building, along with an adjacent eight-story structure at 225 West 57th Street, which was not landmarked, was to become part of a larger hotel development, to be situated across from Carnegie Hall. The century-old B.F. Goodrich building had previously been up for landmark status in 1994, but had been denied.

Structure Tone, one of the nation's leading construction management firms, is partnering with Corporate Lease Properties to finance new real estate projects or sale-leaseback deals. The venture will allow it to provide alternative financing to corporations leasing space to strong creditworthy tenants, and therefore help move projects along that require new construction financing or just enough money to build out space for a new tenant. They have a number of deals in the pipeline and are focused on deals in Tier 1 cities, including New York, Boston and San Francisco.

All of the new skyscrapers going up in our city are all roughly the same height, which is gradually making the skyline look like a solid brick. It's a variation in building height that creates a magnificent skyline. One day there will be buildings taller than the Empire State Building.

The W Hotel Union Square is facing imminent default. The hotel is serving as collateral for a $115 million W New York-Union Square loan. The loan has been transferred to a special servicer, being classified for imminent default. 30-day-plus delinquencies for all commercial properties jumped 5.5 percent in October. The worst performing commercial mortgage category was hotels, which hit a record-high delinquency rate of 10.7 percent among loans that originated in 2007.

While it's bad enough that the boom days of commercial real estate are over, investors are stuck with their tail between their legs in the wake of the market crash. Navigating the market downturn, investors today are more conservative than they were just a few years ago. People are doing things today because they are embarrassed about what they did before, so they need money to restructure. But Starwood could be in a position to help. They are focused on lending money and buying a lot of debt.

Commercial real estate isn't waiting for the next shoe to drop, because the crisis is already here. The driving forces behind the commercial fallout include lack of available credit, rising delinquencies and vacancies, and unemployment. There are many opportunities for tenants amid the gloomy numbers. The commercial real estate market is going to take at least two to three years to recover, since it is slower moving than residential real estate.

Italian real estate and financial firm Sorgente Group is the latest among a series of international investors eyeing Manhattan office buildings. Sorgente CEO Valter Mainetti told Bloomberg that his group is in talks to purchase a 51 percent stake in the 57-story Woolworth Building at 233 Broadway in the Financial District. Sorgente, which is also invested in the Flatiron Building, is in talks to invest in two other New York City buildings.

While the major money center banks continue to limit financing for commercial real estate, a number of insurance companies are entering to provide long-term mortgage financing. Earlier this year, insurance companies were providing mortgage financing at rates in the range of 7.5 to 8 percent. More recently, rates have dropped to 6.5 percent. The preferred asset class for financing is residential rental apartments, office buildings in major urban markets, well-anchored grocery retail shopping centers and established retail malls.

In the current downturn, tenants are shying away from highly leveraged buildings in an effort to protect themselves against possible building service cutbacks or other interruptions tied to onerous debt-service payments. High leverage along with financially strapped ownership, legal uncertainty or extremely high vacancy, are leading tenants to shun leasing in certain buildings. Relatively low leverage on the company's buildings was an advantage.

A new Federal Reserve policy aimed at warding off a wave of defaults in the commercial real estate sector urges prudent loan workouts for borrowers who are short on cash or who are having trouble selling or renting their commercial properties. Workouts are in the best interest of both lenders and borrowers. Loans made to creditworthy borrowers won't be downgraded solely because the underlying collateral has declined in value.

In order for the commercial real estate sector to improve in 2010, it is necessary that existing debt be paid off before anything else moves forward. Since many smaller and mid-sized banks have not securitized their debts, they need to communicate with borrowers that they have confidence to bring capital to the table. It's not question of bailing out developers or whether or not the debt crisis has hit, but a question of working through existing debt. While Class A properties and trophy retail spaces are being bought up by wealthy foreign nations, the B and C class commercial properties are still struggling under large debts that must be paid in order for the commercial sector to improve.

A rendering of the development at 437 West 13th Street received approval for a shorter new 10-story office and retail building in the Meatpacking District. Over the course of public hearings, community groups argued that the tower would outsize its neighbors and replace a historic Meatpacking building, therefore the proposal was scaled down to 201 feet, and then to 175 feet, at which point it was approved. Even so, the approved proposal is 24 percent larger than traditional zoning laws would allow for that space.

Mayor Michael Bloomberg's office has clinched four different project labor agreements, covering $5.3 billion in public works projects, which will ultimately save the city almost $300 million. The mayor's office plans to invest the $300 million in restoring infrastructure projects over the next four years. In total, an estimated 1,800 construction jobs, which would have otherwise been cut due to the economic downturn, will be saved by the injection of capital. The $300 million, secured through negotiations with the Building and Construction Trades Council, will go toward long-term projects.

With fewer hotel rooms under construction, hotel developers hope the reduction in new rooms will help to revive the hospitality industry. The total active U.S. hotel development pipeline includes 4,089 projects comprising 435,265 rooms. This represents a 32.7 percent decrease in the number of rooms in the total active pipeline, which includes projects in the construction, final planning and planning stages, but not in the pre planning stage, compared to October 2008. The number of rooms in construction fell 41.2 percent from the same time last year. A number of planned hotels have grounded to a halt in Manhattan including the Lower East Side's 180 Ludlow Street.

The New York Court of Appeals cleared the way for developer Bruce Ratner to move forward with plans for his $4.9 billion Atlantic Yards project, dismissing opponents' claims that the state had misused eminent domain laws in securing land for the development. The decision may come just in the nick of time for Ratner, who needs to make a Dec. 31 deadline if he is to receive tax-exempt status on $600 million in bonds for the new 18,000-seat New Jersey Nets arena he's building at the intersection of Flatbush and Atlantic Avenue. In addition to the arena, Ratner plans for 16 high-rise towers nearby on the 22-acre lot, with up to 6,430 apartments. While the eminent domain case was a major obstacle, Ratner would have to clear before beginning construction, he is facing a slew of other lawsuits, including one filed by some 20 community advocacy groups contending that the Empire State Development Corporation and Ratner's Forest City Companies planned to circumvent the project's governing document and were refusing to submit a Supplemental Environmental Impact Statement.

New York City saw $3.9 billion worth of construction starts in the third quarter of 2009. In an indication of stabilization in the building sector, that number remained roughly in line with the second quarter's $4.1 billion in construction starts, a jump from the city's $1.8 billion showing in the first quarter. The city had $5.3 billion in starts during the third quarter of 2008. The third-quarter 2009 reflects both new projects and alterations and renovations to existing structures, is the strongest of the year for residential construction. Though the 907 units that broke ground during the quarter were still far off from the 3,206 that did so in the third quarter of 2008, the number surpassed the 506 units that saw construction begin in 2009's second quarter. Nonresidential construction starts, valued at $784 million per month, on average, were slightly down from the $829 million per month in the quarter earlier but still improved over the $364 million per month in the first quarter. Schools, libraries and labs made up 35 percent of those nonresidential projects; offices and bank buildings made up 28 percent.

Fighting back against a torrent of unflattering press, Joseph Moinian spoke and said that he is 100 percent current on loan payments for the Ocean, 17 Battery Park North and 180 Maiden Lane. Moinian was $90 million behind on payments at the Ocean and that he had admitted he'd miss loan payments on the two Downtown office buildings. The loans have been referred to a special servicer was a routine step, Moinian argued.

National commercial property prices have dropped to 2002 levels, as the all-property type aggregate index declined to 109.61 in September, a 3.9 percent month-over-month drop. The September level in the Commercial Property Price Indices is 42.9 percent lower than the peak prices in October 2007. Overall market transactions have been low throughout the year, as nationwide commercial property transactions number fewer than 400 thus far in 2009. In New York, office building prices saw an index rating of 176 in September this year, a 22.9 drop from the rating seen during the same time period a year earlier.

Stalled construction projects have become a fixture of the New York City streetscape in the aftermath of the real estate bust, but upkeep on the partially-built structures has proven a costly task. The city spent approximately $10,000 on each of 75 buildings dangerously close to collapse between June 2008 and June 2009. The funds went toward emergency scaffolding sheds. Only 27 such reinforcements were needed during the same period in 2007. An additional 75 buildings were demolished at an average of $49,000 each during fiscal year 2009, up from 53 in fiscal year 2008. Squatters are also proving costly, with 47 abandoned buildings needing roughly $2,000 that went toward sealing doors and windows over the past fiscal year. Still, such efforts haven't eliminated the dangers of neglected construction sites. At least 15 pedestrians have reported being hit with falling debris from city properties this year.

Declining New York City rental prices may be tough on commercial landlords, but the trend has been good for emerging businesses. The recession has precipitated new enterprises, with companies given the chance to snatch up leases at a bargain rate. Since the fallout on Wall Street last year there's been a big decline in rents so that's really given a lot of new retailers opportunities to open up in the city and come in for the first time. Chain restaurant Five Guys Burgers is one of many businesses taking advantage of the reduced rates in the city. With sales up 25 to 30 percent year-over-year and an aggressive expansion plan in place, the chain intend to open a Third Avenue spot.

Up Ventures, a real estate development group specializing in innovative restaurant space aims to bring Tokyo- and Hong Kong-style restaurant real estate to New York City. In New York, you see restaurants on the basement floor, the ground floor or the rooftop in different buildings, but overseas, restaurateurs establish eateries on upper-level floors of the same building. Rather than browse blocks for restaurants, patrons could look upstairs or downstairs at the offerings in a single building. The concept clicked and he began to explore ways in which he could apply the relatively unheard of strategy in New York.

Manhattan Buildings sold

The Volkswagen Group of America has purchased the 265,000-square-foot Potamkin General Motors building at 798-804 11th Avenue between 55th and 56th streets. The space was purchased for $84 million with plans to renovate through a $41 million investment, and will be used as the flagship Manhattan dealership for Audi and Volkswagen.

The 24,700-square-foot retail space in the St. Regis New York was sold to a three-way partnership of property managers for $117 million. GFC Fifth Avenue is comprised of Crown Acquisitions, Goldman Properties and the Feil Organization, and they bought the property, located at 2 East 55th Street at Fifth Avenue, from Starwood Hotels & Resorts Worldwide. The space houses luxury retailers such as Bottega Veneta, Pucci and De Beers. GFC has six other retail properties along Fifth Avenue's Midtown corridor, including 666 Fifth Avenue and 590 Fifth Avenue.

SL Green Realty has purchased another leasehold position at the Graybar Building, the 31-story office and retail tower above Grand Central Terminal at 420 Lexington Avenue. The $7.6 million transaction is the second of its kind in recent months. SL Green, which handles the management and the leasing at the building, purchased W&M Properties' leasehold position in August, also for $7.6 million, and in September began to alter the building's ground-floor leases in order to simplify the ownership structure. SL Green's mortgage on the Graybar Building was due next year, but refinanced the loan.

Manhattan Retail Developments

Asking rates for storefront space fluctuated across the island. Some neighborhoods declined, correcting from all-time high rates, while others fared better. The borough's most high-end shopping neighborhoods are holding on, even in the rough economy, with strong numbers. Overall average asking rents for Manhattan retail space dropped 9 percent to $117 per square foot. The Fifth Avenue shopping area between 49th and 59th streets saw average asking rents for ground-floor retail space at $2,050 per square foot this fall, up 46 percent from fall 2008, while asking rates in the Meatpacking District went up 23 percent to $375 per square foot, and Soho rates jumped 12 percent to $483 per square foot. Other key shopping regions, including Times Square and Seventh Avenue between 42nd and 47th streets, saw moderate year-over-year increases in their average asking rents for autumn this year as well.

The streets from 57th to 72nd Street on Madison Avenue have suffered an uncharacteristic glut of vacancies. Madison Avenue has suffered the steepest rent drops of any major Manhattan retail district, average asking rent plunged 41 percent, to $770 per square foot, in the third quarter of 2009 from the fourth quarter of 2008. Asking rents on Madison Avenue have actually plummeted even lower to as low as $500 per square foot, while vacancies remain high.

A number of regional, national and international retailers are to open its first outposts in New York City. Costco, the largest membership warehouse club in the world, opened its first location in Manhattan in the 500,000-square-foot East River Plaza. Target will open its first Manhattan store in the same plaza next year. Best Buy, Marshalls and New York City's first Bob's Discount Furniture will join them.

Many pop-up shops find that a pop-up status can be a good first step toward permanent residency in New York City. One-time pop-uppers, like Kai D. menswear store at 75 Orchard Street are signing long-term leases after their short-term occupancies run out. The strategy is also working for desperate landlords, who eagerly sign-on the temporary shops when tenants are hard to come by.

The famous 1990s nightclub Limelight is getting a rebirth as a retail experiment and it's proving successful, with 75 percent of the available 60 shop spaces leased. Retailers are Caswell Massey, America's oldest retailer and Hunter Boots, a 150-year-old firm. Newcomers include Mari's New York, a brownie business; It's Sugar, a candy store, Carter & Cavero Old World Olive Oil, and Silly Souls, a baby goods store. They're also negotiating to bring in three restaurants.