Even with corporate layoffs occurring at a brisk clip in New York's financial sector — some 57,075 job cuts have been announced since the start of 2007 through February 2008 — the proposed purchase of Wall Street giant Bear Stearns by JPMorgan Chase & Co. is not likely to result in a wave of vacant space, say leasing brokers.

That's largely because the office market remains healthy and companies are unwilling to part with their extra space, says Peter Hennessy, president of the New York region for The Staubach Co., a tenant rep specialist. “Companies have decided to hold their extra space for six or 12 months and see whether business rebounds,” explains Hennessy.

The reluctance to sublease can be traced to the recent steep rise in rents. Prime space currently leases for $90 per sq. ft. or more. If an investment bank gives up some space, it could be forced to seek office space a year or two from now — and pay even higher rents.

The office vacancy rate in Manhattan was a tight 5.2% in February 2008, down from 5.4% a year earlier, according to CB Richard Ellis, and is expected to rise only slightly to 5.6% by year's end. Meanwhile, the average asking rent reached $69.56 per sq. ft., up from $56.64 a year earlier. “Rents may drop 5% or so in the next 12 months, but so far there has been no decline,” says Hennessy.

Still, the market isn't completely immune to risk. Construction activity remains brisk in Manhattan. CB Richard Ellis projects an additional 2.5 million sq. ft. in Class-A space will come on line in Midtown this year. New buildings for Goldman Sachs and Bank of America are currently under construction.

But those projects in the ground were started months ago when financing was still available. Brokers say that it is very difficult to start any new construction now. Projects that were planned may be postponed. Merrill Lynch cancelled plans to renovate a building after the broker suffered big losses in the subprime markets and the chief executive was ousted.

The saga of investment bank Bear Stearns also is drawing national attention to the New York office market. Analysts predict that half of Bear Stearns' 14,000-strong workforce will be out of a job. JPMorgan has made a bid to buy the company for $1.18 billion, including its 1.1 million sq. ft. headquarters. The octagonal building features eight corner offices per floor and stands in one of the most coveted locations in Manhattan, near the Grand Central Terminal.

Completed in 2002, the building was custom designed for Bear Stearns. Many floors are 42,000 sq. ft. — large spaces suitable for financial firms — and brokers estimate that the building could fetch more than $1.1 billion.

“It is a beautiful building that is an ideal location for investment banks or other big tenants,” says Woody Heller, executive managing director of Studley, a tenant rep specialist based in Manhattan.

JPMorgan had planned to build a 40-story, $2 billion building at World Trade Center 5. Brokers speculate that project will be dropped now that the investment bank stands to acquire the Bear Stearns building. “In today's uncertain environment, it seems unlikely that JPMorgan would take on such a big construction project,” says Heller.

While Manhattan office vacancy rates remain steady, investment sales activity has slowed because of financing difficulties. “I haven't heard of anything trading recently,” says Paul Fried, principal of AFC Realty Capital, an investment bank in Manhattan. “There are equity players that would like to make acquisitions, but they can't buy because there is no financing.”