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Report finds that vacancy and lease rollover represent risk in city's office markets

January 23, 2009

The city's office market worsened last year and its vacancy rate rose from 5.7 percent in the fourth quarter of 2007 to 8 percent in the fourth quarter last year, according to a report issued today by Cushman & Wakefield, Inc. In 2002, the vacancy rate was 12 percent and in 1991 it was 18 percent.

The report also noted that the decline in asking rents in the recent quarter was the largest in 20 years, 4.8 percent. Class A office space in Midtown dropped $6.99 a square feet, or 7.5 percent since August, 2008.

It noted that rental rates in midtown in 2008 were $79.81, compared to $58.92 in 2006, $48.27 in 2003, and $28.52 in 1993. The rental rates downtown in 2008 were $47.86, compared to $38.62 in 2006, $36.93 in 2003, and $26.45 in 1993.

It found that leasing activity in the quarter was at its lowest level since 2001 and that sublease space climbed 132 percent in the last year to 8.2 million square feet.

"The most measurable impact of the credit crises in the Manhattan market for 2008 has been the decrease in sales volume - 2008 sales at $19.6 billion as compared to 2007 at $47.7 billion, a decline of nearly 60 percent," the report maintained, adding that "one-third of 2008's sales volume is attributed to Macklowe Properties transactions, facilitated by seller financing or loan assumptions."

No major Class A office sales occurred the fourth quarter "providing no post-Lehman comparable sales data," it continued, adding that "investors are demanding higher returns and favor stability rather than upside" and "vacancy and lease rollover represent risk and investors are applying large discounts."

The report found that residential condominium sales in Manhattan in the fourth quarter "dropped 11.5 percent since its peak" in the second quarter of 2008 where the price per square feet was more than $1,400 as compared to only more than $400 a square foot in the first quarter of 1998.

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