• Leasing activity totaled 19.1 million square feet, the lowest level since 18.9 million square feet in 2001.
• Leasing activity for 2008 dropped 19 percent from the 23.5 million square feet leased in 2007.
• Leasing activity decreased significantly year-over-year in all three submarkets, with Midtown, Midtown South and Downtown declining 17.2 percent, 21.5 percent and 23.4 percent, respectively.
• Manhattan's office vacancy rate increased to 8.0 percent at the end of 2008, up from 5.7 percent at the end of 2007, and the highest since the first quarter of 2006.

A full release from C&W below:

NEW YORK – January 6, 2009 – Cushman & Wakefield today released its year-end 2008 report for the Manhattan commercial real estate market showing new office leasing activity in the city totaling 19.1 million square feet, the lowest level since 18.9 million square feet in 2001. Leasing activity for 2008 was down 19 percent from the 23.5 million square feet leased in 2007.

Leasing decreased significantly year-over-year in all three submarkets, with Midtown, Midtown South and Downtown down 17.2 percent, 21.5 percent and 23.4 percent respectively. The slowdown brought available space in Manhattan to 31.1 million square feet, a 43 percent increase from the 22.2 million square feet available at the end of 2007, and the highest level since May 2006.

“The majority of tenants in the market for office space have been employing a cautious ‘wait and see’ attitude,” said Joseph Harbert, chief operating officer of Cushman & Wakefield’s New York Metro Region. “As vacancy increases and rents begin to soften, activity has been driven by those tenants nearing lease expirations who have no choice but to make a decision, as well as those who see real value and opportunity in the market.”

Declining activity put upward pressure on Manhattan’s overall vacancy rate, which increased to 8.0 percent at the end of 2008, up from 5.7 percent at the end of 2007, and the highest since the first quarter of 2006. Midtown Manhattan’s vacancy rate increased 2.3 percentage points year-over-year, reaching 8.5 percent at the end of 2008, the highest level since the third quarter of 2005 and the highest vacancy rate of the city’s three major submarkets.

Space available for sublease in Manhattan climbed to 8.2 million square feet, up 132 percent from the 3.5 million square feet available for sublease at the end of 2007.

Though leasing activity slowed, large leases continued to be completed, with 32 leases of more than 100,000 square feet signed in 2008, compared to 30 such leases in 2007. Leases of more than 100,000 square feet accounted for nearly 35 percent of all leasing activity in 2008, versus 13 percent of activity in 2007.

“The majority of 2008’s larger deals were due to expiring leases, and many of these tenants chose to stay and renew,” said Mr. Harbert.

Seven of the year’s 10 largest leases were renewals, compared to five of the largest 10 in 2007. Among the largest of these renewals were Viacom’s 1.3 million-square-foot lease at 1515 Broadway and Colgate-Palmolive’s 537,000-square-foot lease at 300 Park Avenue.

After an enormous run up in pricing during 2007 and early 2008, asking rents throughout the city began to decline only during the last three months of 2008. Though only sublease asking rents charted a year-over-year decrease, quarterly declines for asking rents were the largest in at least 20 years. From the end of September to the end of December, overall asking rents for Manhattan declined $3.53 per square foot, or 4.8 percent; asking rents for space available directly from landlords declined $2.04 per square foot, or 2.7 percent; and asking rents for sublease space decreased $7.58 per square foot, or 10.7 percent.

“Based on this sharp quarterly decrease, we expect asking rents to continue to decline well into 2009, and ‘taking deals’ to reflect increased discounts to asking rents,” said Mr. Harbert.

INVESTMENT SALES

Annual investment sales activity for transactions $10 million and higher was at the lowest level in New York City since 2004, ending 2008 with approximately $19.2 billion in closed sales. Activity was down 60 percent from the record $47.8 billion in sales closed in 2007.

The majority of sales activity took place during the first half of 2008. More than half of the year’s transactions were completed with seller financing or loan assumptions, and the sales of Macklowe Properties assets accounted for more than one-third of the year’s transaction volume. Two of the year’s largest transactions were user deals, as Barclays took over the former Lehman Brothers’ headquarters at 745 Seventh Avenue and Bear Stearns handed over 383 Madison Avenue to JP Morgan Chase.

Foreign investors accounted for nearly 39 percent of all closed transactions, compared to 12 percent in 2007. Private investors, who had made up 65 percent of sales volume in 2007, accounted for 34 percent of 2008 activity. Class-A office buildings accounted for 57 percent of closed sales in 2008, on par with 52 percent in 2007.

“Activity has decreased significantly over the past year,” said Mr. Harbert. “The combination of the federal government’s focus on reviving the credit market and troubled assets working their way through the system should translate into increased activity as the year progresses.”

Estimates of price decreases have ranged from 20 percent to 30 percent compared to the mid-2007 peak, however it is difficult to substantiate, as there are few recent data points, particularly since September.

“Institutional, foreign and opportunistic capital sources continue to track the market in Manhattan, waiting for the availability of, and opportune time to pursue, property offerings and note sales,” said Mr. Harbert.

RETAIL

The retail real estate sector began to wind down from record highs in 2008, though it performed better than the office and investment markets.

“While retail has not seen a dramatic fall off, we’re beginning to see softness across markets and product type,” said Mr. Harbert. “It will take at least six months to understand what impact the national environment will have on the Manhattan retail market.”

Asking rents for ground floor space on Madison Avenue decreased $34 per square foot year-over-year, ending 2008 at $1,057 per square foot, while the luxury corridor’s availability rate increased to 12.4 percent, up from 8.6 percent at the end of 2007.

On Manhattan’s Upper West Side, availability decreased from 7.6 percent in 2007 to 5.7 percent at the end of 2008. Rental rates remained relatively flat, dropping to $334 per square foot at year-end from $336 per square foot at this time last year.

In Soho, asking rents dropped $13 per square foot from 2007, ending the year at $263 per square foot, while availability decreased year-over-year from 8.5 percent in 2007 to 7.3 percent in 2008.

Activity on Manhattan’s Fifth Avenue, the world’s most expensive retail street, surged in 2008, with blockbuster deals including Gucci’s lease to Diesel at 685 Fifth Avenue and abercrombie’s lease at 666 Fifth Avenue. With availability limited to just 4.9 percent, asking rents continue to surpass $2,000 per square foot.

“As far as Manhattan is concerned, 2008 was a good year for the retail real estate market,” said Mr. Harbert. “Looking forward, expected declines in consumer spending and tourism will affect the Manhattan market, which will translate into further retail availability and a deceleration of average asking rents in 2009.”