The Optimist Speaks

New York Rents Hold Steady Despite Financial Services Layoffs – National Real Estate Investor – Poonkulali Thangavelu – 11 July 08

“Despite a soft economy and struggling financial sector, the Manhattan office market continues to be resilient as second-quarter absorption and leasing showed improvement over the first quarter, and relocation transactions combined with renewal activity has been close to 2007‘s levels,” said…CB Richard Ellis…In the first half of the year, however, leasing activity was down to 10.4 million sq. ft. compared with 11.98 million sq. ft. at the end of June 2007. The average vacancy rate stood at 6% at the end of June, compared with 4.4% over the same period last year…companies are not in a hurry to get rid of their space, and CBRE has not seen a “vast flood of subleased space hitting the market.”…noted a “significant widening” of the pricing for direct rentals and for subleased space, with subleased space driving rents down since renters of subleased space are motivated more by a desire to “stop the bleeding” than by the desire to wait and maximize value that motivates landlords of directly leased space. Fiddle expects this widening to continue…this “counterintuitive” rise in rent in the face of a slowdown and job losses in the financial services sector is due to the essentially supply constrained nature of the market…”With new construction constrained and sublease space still modest today, landlords have never been in a stronger position heading into a market downturn,”…Even if the economy continues to worsen and more space is added, it is unlikely to be at a level that would lead to a freefall, according to CBRE, which means the lack of choice for tenants will still limit the downside.

Vacancy up 36% – rents under pressure from sublease space – subleasors looking to “stop the bleeding” – and this is the optimist?