Office vacancies continue to increase slowly, but will substantially increase due to the recent Wall Street and bank layoffs as the surplus of office comes back to the market. In addition, Bank of America is moving to its new headquarters and will release or sublease its former occupied space.

New York City Market Overview:

Millions of square feet of commercial are about to hit the market as fears about the economy persist and financial service industries face more layoffs. JP Morgan Chase announced Tuesday that 50 percent of Bear Stern’s employees will be cut, and they are planning to vacate about 1 million square feet of office in New York City. Even more office will become available with the opening of the 2.1-million-square-foot Bank of America tower at 1 Brant Park and Equity Office's1.3-million-square-foot building at 1095 Sixth Avenue. We are now starting to see more come on the market due to the layoffs. The average asking rent for Class A office in Manhattan slipped almost 1 percent to $86.53 per square foot in April, from $87.38 per square foot the month before. This marked the first month-to-month decrease in Class A asking rent since fall 2005. Overall, asking rents were up, owing to price increases for Class B and Class C space. Average asking rent was $66.42 per square foot, up 1.6 percent from $65.38 per square foot in March. The borough's vacancy rated increased 50 basis points to 8.3 percent in April. Vacancy slipped up the most in Downtown last month, increasing to 8.1 percent, from 7.0 percent in March. Morgan Stanley, who is reeling from bad bets on subprime mortgages, could terminate up to 5 percent of its workers over the next few months. Out of about 47,000 people, it has already cut at least 3,000 jobs since October. Morgan Stanley CEO John Mack said recently that the credit crisis will continue as it spreads to commercial real estate, midsized banks and European subprime mortgages. In total, 100,000 jobs could be lost. One Bryant Park’s anchor tenant occupies all of the floors given the Temporary Certificate of Occupancy, and employees have already begun moving in to some floors. The Durst Organization received a temporary certificate of occupancy for the first 18 floors of One Bryant Park on Friday, the tower's official grand opening will not take place until the lobby is built out, which is expected sometime in spring 2009. The May, Midtown office survey showed that the submarket's vacancy rate was 4.8 percent, up .1 percent from April. April's leasing activity was 1.38 million square feet, 18 % less than the five-year monthly average. Pricing in most areas was stable, except for the Plaza district's asking rent, which increased $3.59/RSF to $119.14/RSF. Midtown's overall asking rent increased a mere $0.17/RSF last month.

New York City Class A Office stayed at 5.6 % vacant. New York City Office vacancy stayed at 5.7 % vacant. Total Available Manhattan Retail Space increased from 1.09 million RSF to 1.10 million RSF.

Retail Marketplace

Soho’s rising rents on Broadway are pushing out small businesses to make way for chains. Major retailers like Topshop and Aldo are taking over storefronts, paying average rents of $424 per square foot. Rent increases are causing smaller retailers and landlords to cash out on their leases rather than pay more for their space.

Hotel Developments

New York's hotel industry is beginning to fear a slowdown. Although business is positive now, rising inventory and fear of a recession are beginning to push many hoteliers to develop plans for a weaker environment. Chang, who is building 40% of the 10,000 rooms coming into the city, said that the credit crunch is slowing him down and that he is trying to finish what he has in the pipeline.

Sam Chang, a hotel developer, is planning a 30-40-story boutique hotel for 6 Water Street and 32-38 Pearl Street, on an 8,300-square-foot site, which he purchased for $56 million. He is also opening another hotel near JFK International Airport. Chang who is president and CEO of McSam Hotel Group said the Sheraton JFK Airport at 132-20 South Conduit Avenue in Jamaica, Queens, will have 150 rooms and a room rate of $170 to $200 a night. McSam will maintain a 50% stake in the hotel and its partner, Hersha Hospitality Trust, will manage the hotel.

A 250-room Cambria Suites hotel, will replace the Glad Tidings Tabernacle Church at 325 West 33rd Street for $31 million. PLC Partners is also building the 300-room Cambria Suites Brooklyn Bridge hotel.

Plans for the Nobu Hotel and Residences at 45 Broad Street revealed an all-glass 62-story tower with a mix of condos, hotel rooms and retail. The 650-foot high-rise will have 77 luxury condos on the 41st through 62nd floors and an additional 128-room hotel below.

Despite the economic slowdown, Manhattan retail rents increased in prime shopping areas over the past six months as tourists continued to spend freely, a report released today from the Real Estate Board of New York. Manhattan retail rents grew by 3 percent, compared to a year ago, to an average of $111 per square foot. In some areas rents fell, including on Madison Avenue from 57th to 72nd street, where the average asking rent fell by 8 percent to $1,066 per square foot.

New Developments

The New York City Economic Development Corporation is accepting proposals to turn 492 First Avenue into a hotel and conference center. The nine-story building occupies almost 400,000 square feet and was built in 1931.

Average home prices in the New York metropolitan area fell 0.95% from February to March, excluding the condo market.

The city is going to select a developer for a 1.7 million-square-foot development on East 125th Street. The project will include retail, a national chain, and local shops, along with restaurants, movie theaters and nightclubs. It will also include office and up to 1,000 apartments. The city is rezoning the area and will decide on a developer by the end of the summer and construction could begin as soon as the end of 2009.

A Mortimer Zuckerman led group bought the General Motors Building for $2.9 billion from developer Harry Macklowe along with 125 West 55th Street, 2 Grand Central Tower and 540 Madison Avenue in a deal worth $3.95 billion. Zuckerman bought the G.M. Building for the highest price ever paid for a U.S. office tower. Mort Zuckerman is expected to cash in on rent increases as tenants at his newly-purchased General Motors Building are replaced. The buildings have a combined total of about 1.4 million square feet and values of about $1,000 a foot. Boston Properties is putting up a $165 million deposit to purchase a 49 percent ownership stake in the properties, worth a total of about $1.5 billion.

Mort Zuckerman argued in a Manhattan Supreme Court affidavit that developer Joseph Moinian is holding up the construction of his 39-story Eighth Avenue office tower known as 250 West 55th Street. It is supposed to be built by January 2010. At issue is a four-story building owned by Moinian at 241 West 54th Street. Zuckerman claims that Moinian is denying his company, Boston Properties, access to the building so it can be reinforced before work begins next door.

Taconic's dramatic planned makeover of 375 Pearl Street has been revealed. The old Verizon switching station at the foot of the Brooklyn Bridge was sold to Taconic for $172 million. The firm is planning a $350 million redesign, which will strip limestone and re-clad the 32-story tower with a glass curtain wall, revealing big concrete support beams. The long-awaited redevelopment of Pier A finally has a timetable, now that the Battery Park City Authority has pledged to restore the landmarked pier. By August, it vows to get a "conceptual framework" in place and wants a final design by next May. By 2011, it could be a tourist hub, with shops, restaurants and ferries to Statue of Liberty and Ellis Island.

The city and state are working with Goldman Sachs to re-negotiate the investment bank's deal to get about $320 million if road, transit and security improvements weren't in place by 2010. With all of those projects behind schedule, government officials are trying to find out Goldman's main concerns and avoid the steep penalties.

Bear Stearns is being sued by 383 Madison LLC, the owner of the land under its headquarters, for breaching a contract that was supposed to give it first dibs on the building. The firm says Bear Stearns did not discuss its contract allowing J.P. Morgan Chase to buy its building. The lawsuit, filed in New York State Supreme Court in Manhattan, claims it should be able to purchase the building for the $1.1 billion that J.P. Morgan is paying.

Gov. David Paterson said that the Port Authority may gain control over the Moynihan Station project. Paterson could soon put the project in the hands of Christopher Ward, who is expected to be appointed the Port Authority's executive director. Senator Chuck Schumer, who has been pushing for the switch since March, released a statement stating his support for Paterson's decision. Private equity firms have acquired 75,000 rent-regulated apartments in the city. In the last four years about 6 percent of the 1.2 million units’ total of such units and residents and tenant advocacy groups, claim these new landlords are harassing tenants, in an effort to increase vacancy and hike rents.

Each year, the city loses about 30,000 rent-regulated apartments, and Wall Street investments firms are about to increase that number. Private investment firms are buying buildings in working-class neighborhoods and are bringing in higher-paying residents. Mayor Michael Bloomberg has pledged to spend $7.5 billion to preserve low-cost housing, and so far the city has assisted in building and preserving 71,000 units.

Developers are preparing for life after the 421a, tax abatement program, the New York state law that rewards developers with property tax abatement certificates. It will end in its current form on June 30, 2008.

Foreign investors are buying fewer Manhattan office buildings and are spending less. Last year, foreign investors bought at least 10 office buildings for $500 million and five for well over $1 billion. In the first quarter, the largest deal by a foreign investor was $525 million when Eyal Ofer, a London-based Israeli investor, paid for the Altria Building, a 650,000-square-foot building at 120 Park Avenue. Foreigners bought only two other buildings for about $150 million. While tight credit markets and the weakening financial industry are concerns, many foreign buyers are in good shape because most have not incurred as much debt as U.S. buyers did during the recent boom times, and because foreign investors tend to have a longer time horizon.

Indian companies are on the hunt for properties in New York City as the dollar weakens and the rupee gains in value. Tata bought the Pierre Hotel two years ago and started a $100 million renovation there this year. Other Indian companies are looking to expand in the U.S. and are acquiring some city real estate as they buy smaller firms. More Indian bank branches could be opening soon. ICICI Bank Ltd. opened a Midtown branch this year, while State Bank of India plans to open another branch.

Vincent's Hospital and Rudin Management have presented a downsized version of their $1.6 billion development plan, following their failure to gain approval from the Landmarks Preservation Commission. The plan would demolish five buildings and preserve the other four. The hospital is applying for hardship approval to demolish the O'Toole Building.

WTC transit hub bigger revisions to the World Trade Center transportation hub and PATH terminal could be needed, if no contractor can be found to build the project for $2.5 billion. Santiago Calatrava's bird-like design will remain intact and the train station is still on track to be "completed and functioning" in 2011. Changes could include shrinking a street-level perimeter and using regular concrete for the mezzanine ceiling.

Cantor Fitzgerald L.P., the Manhattan-based global financial services firm, said it will launch an investment and development group, called Cantor Real Estate LLC, focused on dislocated assets and other opportunistic real estate deal and plans to raise between $300 million and $350 million.

The law firm Paul, Weiss, Rifkind, Wharton & Garrison could lease more than one-third of the tower that Vornado Realty Trust plans atop the Port Authority bus station. The firm is in negotiations to take 500,000 square feet at the 42-story building. The westward shift of law firms, as Proskauer, Rose and Gibson, Dunn & Crutcher have reportedly reserved at Boston Properties' planned 39-story tower on 55th Street. At the New York Times building at 620 Eighth Avenue, Seyfarth Shaw, Goodwin Procter, Covington & Burling, and Osler, Hoskin & Harcourt have taken space.

The Metropolitan Transportation Authority Board has unanimously authorized the agency's deal with the Related Companies and Goldman Sachs to develop the 26-acre Hudson Yards site on the far West Side. When the original winning bidder, Tishman Speyer, pulled out, Related stepped up within a week and agreed to the same $1.054 billion price. Related's strong financial backing propelled it ahead of a Durst Organization-Vornado Realty Trust joint venture and Extell Development.

Newsweek's new lease of about 165,000 square feet at 395 Hudson Street, in Soho, is part of a three-party deal involving a swap. Newsweek will move into the third and part of the fourth floor, taking occupied by Thomson Reuters, which will move to the fifth and sixth floors. Newsweek is leaving 1775 Broadway, where it has been for 15 years. Newsweek had been expected to move downtown to 100 Church Street.

Empire State Building needs $660M for makeover. The building, valued at an estimated $2 billion-plus, has a debt of only $61 million. The famous building had fallen behind the times in recent years and was filled with small tenants. But as it modernizes, the building is warehousing for larger tenants. As prices go up. rates on new office leases have reached $52 to $63 per square foot, up from $32 to $42 a year ago.

The United Nations has launched its $2 billion renovation, with the groundbreaking of a temporary office on the northern lawn of its campus, east of First Avenue. The project, slated for completion in 2013, will modernize the outdated headquarters, which haven't been refurbished since being built in 1952. The temporary building will host UN meetings, while staffers will be relocated to nearby buildings. The UN recently signed a six-year lease for 460,000 square feet of office at 380 Madison Avenue. Last summer, it signed a deal to lease the vacant Albano Building, a 187,000-square-foot property.

Countrywide sale could collapse Bank of America's $4.1 billion rescue purchase of struggling mortgage giant Countrywide Financial. The word on Wall Street is that the bank could lower its offer or abandon it altogether. Countrywide's subprime mortgage losses have widened. Federal and state agencies have launched investigations into its lending practices and lawsuits have been filed by customers and investors.

Aqueduct Racetrack: New York State is rushing to building a "racino," what the gambling industry calls a casino at a race track, at the Aqueduct in Queens. It would include 4,500 video slot machines, but no gaming tables. Developer Stephen L. Green and the operators of the Hard Rock Cafe chain have offered to open a temporary racino by year's end. Connecticut's Mohegan tribe, operators of the Mohegan Sun resort and casino, has also bid on the project, with Extell Development and hedge fund Plainfield Asset Management as partners.

Building One, Atlantic Yards Frank Gehry's "Miss Brooklyn," has been cut from 620 to 511 feet. The tower's redesign also drops a housing component, making it strictly commercial. Gehry called the redesign "more festive, resulting in a very unique office building." The tower will have 650,000 square feet of office space.

Coney Island plans, following the cut from a 15-acre development to 9 acres by the city a few weeks ago, show tall buildings adjoining the reduced amusement park. Potential tenants, a point of contention between developer Joe Sitt and the city, include a Hard Rock Cafe, Knitting Factory AMC cinemas, Virgin Records, ESPN Zone, Madame Tussauds, Bliss spa and tattoo parlors.

The Economic Development Corporation has suggested NYU expand into Long Island City, an idea NYU administrators have rejected because they believe that area to be too underdeveloped residentially. The suggestion from the EDC follows NYU's fifth open house on expansion. The proposal was part of NYU's plans to expand by 6 million square feet by 2031.

The Sports Museum of America billed as the city's first major sports museum and the first national sports museum has opened in New York. The museum's exhibits will take up 45,000 square feet at 26 Broadway.

Mayor Michael Bloomberg, in a budget update, said the city's finances are stable enough to extend a 7 percent property tax cut and $400 property tax rebate for one more year, but not longer than that. The city still needs to plug a $10.3 billion budget deficit in 2012.

A new NYC listing site launches, called NYvacancies.com, which offers targeted, registration-free listings that include maps, floor plans and full contact details for property. FlyRig.com is another New York City-focused Web site. It also provides free listing services, as well as broker and listing evaluations where clients can sound off about their experiences with brokers. The deadline for building towers 3 and 4 at the World Trade Center has been pushed back a few months so that developer Larry Silverstein can try to rent to Merrill Lynch. Merrill Lynch has been battered by the subprime crisis and might not be able to afford buying or leasing the 2.5-million-square-foot Tower 3. Merrill is also working with Brookfield Properties on extending its lease at the World Financial Center from 2013 to 2018. The firm is considering moving to a 3 million square foot skyscraper at Cortlandt and Church streets that would give it a place to put all of its 10,000 employees who are now at 2 and 4 World Financial Center and 222 Broadway.

Stuyvesant Town Tishman Speyer Properties, which bought Stuyvesant Town and Peter Cooper Village Manhattan for a record $5.4 billion, has accused hundreds of rent-stabilized tenants of living outside their apartments. Three law firms are working on the tenant cases for Tishman and a licensed private investigations service is conducting public records searches.

Rabbi Pinto: is a rabbi to the stars in real estate. Israeli wheelers and dealers in New York City real estate consult Rabbi Yishayahu Yosef Pinto when it comes to business and personal matters. Rabbi Pinto, who has no formal business education, only speaks Hebrew and won't meet with women, is considered by Israeli real estate professionals as well as people in other professions and of different faiths to be a holy man. His supporters credit him with helping hundreds of thousands of people.

Virgin Megastore at 1 Union Square South could be out by early 2009.