New York Market Overview
- Total Manhattan Class A Office vacancies increased from 8.1 % vacant to 8.2 % vacant
- Total New York City Office vacancy decreased from 7.5 % vacant to 7.4 % vacant
The flood of sublease space on the market may be receding. The vacancy rate for sublease space fell to 2.8% in August, down from 3% in July. It was the first drop in 17 months. The proportion of available commercial real estate that is sublease space has also dropped. In August, 25.9% of vacant office space was sublease space, down from 28.2% in April.
The country's commercial real estate market is unlikely to recover before 2012. Office rents in New York may fall another 20% through 2012. In addition, 115 firms nationwide expect prices to fall or stay the same for all types of buildings, the first time in 22 years that investors in a majority of markets expect prices to decline. Commercial real estate values have already fallen 36% since their peak in 2007.
Commercial property sales in the U.S. this year are likely to fall to their lowest level in 18 years. About $16 billion worth of commercial transactions will occur this year, the lowest volume since at least 1991. The commercial mortgage default rate more than doubled in the second quarter, hitting 2.88%, and could hit 4.1 percent, the highest level since 1993, by the end of this year.
A commercial real estate rebound will not be any time soon. A recovery could begin in late 2010 or early 2011, with the worst case scenario being a recovery beginning in 2012. Rising unemployment, vacancy and capitalization rates will continue to keep commercial growth slow. The commercial mortgage backed security delinquency rate currently stands at 3% and will likely rise to between 5 and 6 percent by the end of this year.
Following a two-month rally in office leasing volume, the number of square feet leased in August fell by half. Office leasing volume fell by more than 50% in August compared with July, when 2.1 million square feet was leased. Just 1 million square feet was leased in August.
Strong leasing velocity is beginning to remove fear that the Manhattan leasing market will go into freefall, as landlords continue to provide aggressive incentives such as rent reduction clauses and offers to buy out expiring leases to get contracts signed. Incentives that were completely unheard of a year ago, or at least difficult to get put in a deal, are now being offered regularly.