This year is shaping up to be one of the most challenging years for the New York City office market in more than 20 years, according to Robert Alexander, CB Richard Ellis chairman for the New York Tri-State Region.
During a media briefing at the firm’s headquarters in New York, Alexander noted that considering that as many as 125,000 office workers could lose their jobs, that will add up to 15 million sq. ft. of additional space to the New York office sector this year, in a market that has more than 300 million sq. ft. of capacity. The projection is based on an estimate of about 250 sq. ft. of space occupied per worker, of which only about 50% would be put back on the market. Most of the space is Class-A.
For 2008, the market experienced negative absorption of 12.57 million sq. ft., which means more space was put back on the market than was taken up, compared with positive absorption of 1.92 million sq. ft. in 2007.
The New York office sector’s vacancy rate rose to 7.6% at the end of 2008, compared with 4.9% at the end of 2007, giving tenants more bargaining power.
Michael Geoghegan, CB Richard’s vice chairman for the Tri-State Region, noted, “The rapid increase in sublease space is putting pressure on pricing, particularly in Midtown, where the spread between asking and taking rents has moved from 4.7% in 2007 to 12.6% at the close of 2008.”
On the investment side of the market, transaction volume in 2008 was influenced more by involuntary or “forced” sales, which accounted for 59% of the total Manhattan sales volume of $12.1 billion. Even though transaction volume was down from $38.6 billion in 2007, it still compares favorably with the $9.4 billion worth of transactions seen in 2005.
William Shanahan, a CB Richard Ellis vice chairman of the company’s investment properties institutional group, noted the credit crunch and the lack of activity on the commercial mortgage-backed securities front have “severely mitigated the availability and attractiveness of financing options.”
Last year’s transactions were financed mostly through assumptions of existing loans on the properties (37%) or through seller financing (25%).
“We expect transaction velocity will continue to be affected by the lack of liquidity and that seller financing and loan assumptions will drive the majority of transactions,” Shanahan said.