Office rents are off 30% from their all time highs and will continue to fall as Securities firms and banks may give up to 8 million square feet of office space in Manhattan this year. JPMorgan Chase, Citigroup and Lehman Brothers have already vacated 6.4 million feet of city office space, and Merrill Lynch is likely to give up another 5 million square feet and Smith Barney millions more feet. The available office space may reach 15.5% by the end of 2009, and the New York office market may not improve until the end of 2012.

New York Market Overview:

Weak leasing in Manhattan's submarkets continues to trigger comparisons with velocity rates not seen since the early 2000's. The Penn Station Midtown district in January, had only one 10,000 square feet rental, and only 15,000 square feet was leased in the Plaza District. The vacancy rate for Manhattan Class A properties rose in January to 10.2 percent, cracking through the 10 percent ceiling for the first time since November 2004, The overall vacancy rate in the borough was 11.3 percent, up from 10.4 percent the month before, and average asking rents dropped by $1.03 to $59.30. In Midtown, the Class A vacancy rate jumped sharply to 11.3 percent in January from 9.9 percent in December; in Midtown South the vacancy rate rose a smaller amount to 11.9 percent from 11.4 percent; and Downtown, the average Class A asking rent fell 8.5 percent between December and January to $56.53. Asking rent reductions continue and are now down up to 30% from the peak last summer The number of blocks of space in Midtown with dramatic price cuts quadrupled between September and December. Prices have fallen back to levels last seen in 2005. Each office job loss equates to a loss in demand for about 200-250 square feet. Despite this bad news, leasing negotiations have picked up from the near standstill in the fourth quarter of 2008.

Total Manhattan Class A Office vacancies increased from 7.2 % vacant to 7.3 % vacant. Total New York City Office vacancy increased from 6.9 % vacant to 7 % vacant. Total Available Manhattan Retail Space stayed at 1.12 million SF.

New Developments

The New York State Appellate Division ruled in favor of the Atlantic Yards project today in a lawsuit that challenged the project's environmental review process. Mayor Michael Bloomberg released a statement in support of the project, saying it will "create thousands of jobs and generate badly needed tax revenue." Bloomberg said the court's approval is a big step towards the start of construction for the delayed project.

Proskauer Rose backed out of taking space at Mort Zuckerman's 250 West 55th Street, and now is in talks to move in again. Zuckerman put the 1 million-square-foot project on hold when the law firm backed out of taking about 500,000 square feet in the building, but continued to construct the tower's foundation. Another law firm, Gibson Dunn & Crutcher, is taking 200,000 square feet in the building.

Pfizer is pulling its 685 Third Avenue tower off the market. They plan to use the 650,000-square-foot building for the employees it will gain after an upcoming merger with Wyeth. Pfizer still has 175,000 square feet of sublease space on the market, divided between 605 Third Avenue, at East 40th Street, and 220 East 42nd Street. They had planned to sublease 685 Third Avenue in June 2008, in an effort to save money.

Unions and contractors are trying to reach an agreement on how to cut labor costs in the city. Developers have warned that with high labor costs and difficulty in getting financing, many planned projects will have to be scrapped. Labor can comprise about 50 percent of the cost of a construction job, and developers are hoping costs will decrease by 25 percent. If labor costs are not successfully cut, developers might have to use non-union labor.

The Bloomberg administration is teaming up with the commercial real estate sector in a measure to boost the shaken economy by keeping entrepreneurs, including those who were laid off by finance firms, in the city. Announced was an office "incubator" program that will give start-up businesses in New York, rents at deep discounts. The incubator program would help the city's faltering economy. Hopefully, the companies that are incubated here will move on, grow jobs and take space at market rents elsewhere.

The Sports Museum of America, at 26 Broadway, closed. Wo Boots on Avenue A has closed, and the planned expansion of the Essex Card Shop, also on Avenue A, fell through. Record store Etherea, at 66 Avenue A between 4th and 5th streets, is closing. Manny's Musical Instruments, on West 48th Street, between Sixth and Seventh avenues, will close. The entire street, known as Music Row, may eventually be leveled to make room for the expansion of Rockefeller Center. If the economy does not improve, Gino’s restaurant, at 780 Lexington Avenue on the Upper East Side, will close. Restaurant Fleur del Sol, at 5 East 20th Street, in February will close. Fortunoff’s store at 57th Street and Fifth Avenue has closed, a few days after its lease expired. The store only opened in late 2007. Circuit City received approval to auction leases, or break them, for its remaining 567 properties across the country. The retailer is shutting eight stores in New York State, with 3 in the Bronx, Manhattan and Brooklyn.

Many neighbors and activists reacted positively toward the three proposals submitted for development at Pier 57. Three developers, the Durst Organization, the Related Companies and Oungwoo & Associates, are vying for the right to develop Pier 57. The proposals include public space and are meant to be used by small businesses and community members. Several community members believe the development plans could have a detrimental impact on the environment, endangering the survival of striped bass.

Polo Ralph Lauren renewed and expanded its showrooms at 25 West 39th Street for the seventh through ninth floors in the building. Its new 15-year lease renews the existing space and adds the sixth floorof 13,116 square feet. The asking rent was $55 per square foot.

The new office tower at 510 Madison Avenue, where a three-alarm fire broke out, might lose its only office tenant. Its lease has several clauses allowing the company to get out of the deal. The building has one retail tenant, watch maker Tourneau.

The Landmarks Preservation Commission voted to schedule a public hearing for the West Park Presbyterian Church at 165 West 86th Street at Amsterdam Avenue. The commission is usually reluctant to schedule hearings unless there is strong support for a landmark designation, so the church will likely be landmarked. The church was designed in 1883.

Retailer Marc Ecko Enterprises is facing a legal battle after walking away from its lease at the former Times Square Theater, at 217 West 42nd Street between Seventh and Eighth Avenues. Ecko had been paying rent since 2004 with plans to open a three-level store, but never got past the planning stage. The old theater has been boarded up for years. Ecko stopped paying rent in December. An architectural firm is also suing Ecko for $164,000 for work on the project.

The Moinian Group was late for at least the second time in five months in making a monthly mortgage payment on its office building at 60 Madison Avenue at 27th Street.

The Durst Organization has moved into two floors at the Bank of America Tower at One Bryant Park. Durst occupies two floors in the tower, comprised of 55,000 square feet. Durst is moving from 1155 Sixth Avenue where they occupied 35,000 square feet over three floors. The space at 1155 Sixth Avenue, at 45th Street, is now on the market for lease.

Escada is opening a 7,000 square foot store at 560 Broadway, at Prince Street.

Developer Kent Swig withdrew a request for documents related to Lehman Brothers' foreclosure suits against his stalled condominium conversion at 25 Broad Street and his Nobu Hotel and Residences site at 45 Broad Street in New York's Financial District.

The New York City Landmarks Preservation Commission voted to grant landmark status to two Manhattan skyscrapers, One Chase Manhattan Plaza and the Consolidated Edison Building.

1334 York Avenue Sotheby's auction house has repurchased its headquarters for $370 million. The company sold the 493,000-square-foot building at 1334 York Avenue and East 72nd Street for $175 million in 2002 to help pay off fines. Sotheby's assumed the building's existing $235 million mortgage and paid the remaining $135 million.

Developer Joseph Moinian's W Hotel, at 123 Washington Street, will open this year.

Sam Zell's sale of his 573-property portfolio to the Blackstone Group in 2007 for $39 billion was the largest private equity deal in history. Blackstone flipped hundreds of the buildings right after the purchase for $27 billion. But today, many of the 16 companies that purchased Zell's Equity Office Properties are facing debt and are unable to fill the millions of square feet of office space they purchased. If the building owners cannot make their loan payments, pension funds, hedge funds and insurance companies could also be affected. Harry Macklowe has already lost seven Equity Office towers after he was unable to refinance his debt.

Assembly Speaker Sheldon Silver wants an independent monitor to oversee construction and evaluate the proposed timeline for the World Trade Center site. The Port Authority believes independent oversight is unnecessary because they are already monitoring the construction process. Ward promised that the September 11th memorial would be open by the 10-year anniversary and would remain open to the public. Silver believes speedy reconstruction of the area is important because downtown businesses are still trying to recover from 9/11 while facing new problems amid the current recession.

After failed attempts at developing the former East Village School P.S. 64, the Landlord may be trying to rent out space in the landmark building, at 605 East 9th Street at Avenue B.

The Hawaiian Tropic Zone in Times Square will close for a three-month, $500,000 renovation that will consolidate the restaurant on the building's second floor and leave the first floor as a 3,100-square-foot retail rental space.

Retailer E. Braun & Company will be moving to a less expensive space on Park Avenue after more than 30 years on Madison Avenue.

The Related Companies and the MTA have agreed to delay the closing of the Hudson Yards deal by one year due to the down economy and lack of financing for real estate projects. Related will not have to make the $43.5 million down payment immediately, although the developer will have to pay a nonrefundable $10 million for the delay.

The Metropolitan Transportation Authority confirmed this week that the agency won't give developer Bruce Ratner any of the MTA's allocated federal stimulus funds. Ratner may still be able to get some of the federal stimulus money to be doled out by the governor.

New York Buildings For Sale

The Lower East Side building 217 East Houston Street, at Essex Street, is on the market for $6.5 million. The five-story building has a club on the ground floor. Its lease extends until 2018 and the club pays $20,000 per month in rent, with a 3.5 percent annual increase.

The sale of Starrett City has been put on hold because the owner of the Brooklyn complex, Starrett City Associates, and federal housing officials have been unable to agree on the fair market value of future rents. Starrett City Associates had initially expected to select a winning bid by early September, but the owner felt rents set by the state Department of Housing and Urban Renewal were too low, preventing it from gaining fair value for the property. The 46-tower complex is the largest federally subsidized housing complex in the nation, and bids were expected to approach $1 billion.

Extell Development filed plans with the Attorney General's office to build the Diamond Tower, a commercial condo at 50 West 47th Street, between Fifth and Sixth avenues. Half the building will be devoted to the diamond industry users and the rest will be commercial offices. The diamond portion will have an entrance on 47th Street, and the offices entrance will be on 46th Street. The commercial units will range from 816 to 11,064 square feet, and be priced from $1.203 million to $15.2 million.