And the ’07 Numbers Are In: Rents Are Up! But Demand Is Down

Somehow, with unemployment on the rise nationally, billions in write-downs on Wall Street and a slowing economy that could be hurtling toward recession, Manhattan office rents have still managed to climb.

Cushman & Wakefield’s report for the fourth quarter of 2007, released Tuesday, showed overall asking rents in Manhattan at $65.08 a square foot, up from $62.91 in the third quarter, and $50.56 a year earlier.

So is everything peachy in the world of New York commercial real estate?


Demand has dropped noticeably; leasing activity was down significantly in the last three months of 2007; and vacancy in midtown actually climbed for the second straight quarter.

Brokers say that landlords seem to be more willing to sweeten transactions so as to keep rents on deals high.

“Free rent, work letters, and there are other kinds of softer concessions,” the chief operating officer of Cushman & Wakefield’s New York region, Joseph Harbert, told reporters during a breakfast at power eatery Michael’s. “You want to keep the face rents high.”

As for the future, all eyes are resting on the fate of the financial services industry, which has seen billions in lost value across the sector, but has so far recorded relatively few layoffs.

One thing brokers say to watch for, especially after any layoffs, is the ominously named “shadow space,” where firms such as banks don’t list their space as available, only advertising via whispers and gossip within the industry.

“What we have, if anything, is so-called shadow space or gray space,” Robert Freedman, CEO of brokerage GVA Williams, said, speaking of available large blocks of space.

The market will likely flatten out, Mr. Freedman said, especially if the financial sector proceeds with large-scale job cuts. “The market really couldn’t sustain the pace that it has—net effect of rentals ratcheted up 25, 30, 35 percent in the last year,” he said.

But even layoffs won’t wreak havoc on the industry, say brokers, who seem to always use glass-half-full rhetoric no matter how dire the situation. Cushman presented numbers projecting that even if there were 130,000 jobs lost in financial services and related sectors, the vacancy rate would only rise to about 9 percent in Manhattan, at the high end of what real estate experts consider equilibrium.

Cushman also presented the final tally for a historic year of investment sales. The Manhattan total closed in 2007: $47.8 billion, up from a record $34.7 billion in 2006.

And the ’07 Numbers Are In: Rents Are Up! But Demand Is Down