New York City office
and retail Market Research

May 2008

May 2008 New York Commercial Real Estate Market Report

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Last month, office vacancies increased in Midtown and Downtown due to the recent financial layoffs resulting in being given back, as either direct or sublease space. As a result, Landlords’ are starting to drop rents.

New York Market Overview

  • Total Manhattan Class A Office vacancies increased from 5.2 % vacant to 5.6 % vacant
  • Total New York City Office vacancy increased from 5.3 % vacant to 5.7 % vacant
The State Department of Labor has doubled the possible job cuts on Wall Street than the previous estimates. Predictions indicate that Wall Street will lay off 36,000 employees - one fifth of its entire work force, compared to the 20,000 that the city's Independent Budget Office predicted in March. The bleaker outlook will put a damper on the city's economy, and hurt Manhattan's commercial leasing market in the coming year. If all the layoffs occur, Manhattan will have up to 9 million square feet of office space, direct and sublease on the market.

If that does, in fact, get reintroduced to the market, the vacancy rate would climb to about 9.7%, from its current level of 7.9%. The figure is above the 9% threshold where asking rents are beginning to fall.

4,000 people laid off by Merrill Lynch may not have a short-term impact on office leasing, but it is another shade over the financial-services sector.

As much as half of Bear Stearns' 14,000 employees could be laid off by the firm’s new owner JP Morgan Chase. The number of job cuts is still yet to be determined. New York City's real estate market has been shaken by the collapse of Bear Stearns.

Sales of Class A buildings dropped the hardest.

The first quarter of 2008 showed an apparent drop off in building sales from the prior year, whereas some sectors of the market fared better than others. There was a drop-off of 95% in dollar value of Class A office building sales to $582 million in the first quarter of 2008, from $12.1 billion the previous year. This is compared to a mild drop of 62% for sales of all other offices, to $524 million in the first quarter of 2008, from $1.4 billion in the first quarter of 2007.

Across all categories, building sales so far in 2008 fell 89% to $1.7 billion, from $15.5 billion in the first quarter of 2007.

In New York City, Foreclosures rose by 50% between 2006 and 2007 as a wave of sub-prime defaults is sweeping the U.S.

Foreclosure filings went from 10,000 in 2006 to nearly 15,000 in 2007. Homes in Greenwich, Connecticut have also entered into foreclosure.

666 Fifth Avenue’s retail may be bought by the Carlyle Group, for $525 million. The sale would help Jared Kushner, the owner; repay short-term debt on the building.

Residents of 5 Tudor City Place announced a lawsuit against the City Planning Commission to stop Sheldon Solow's $4 billion development of the former Con Edison site. The suit alleges that in approving Solow's plan, the City Council and Planning Commission ignored wishes of the local community board, which expressed fears that the project would cause noise and pollution during construction and overshadow Tudor City once it was built. Solow's plan calls for 3,000 apartments, 1 million square feet of commercial and 69,000 square feet of retail on First Avenue, between 35th and 41st streets.

L&M Development Partners is teaming up with Goldman Sachs to launch a $100 million urban investment fund aimed at mixed-income housing and other projects in New York and other U.S. cities.
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