New York Times: Manhattan Awash in Open Office Space

Square Feet

By J. ALEX TARQUINIO

Last year, when the New York real estate market was still frothy, large blocks of office space were hard to come by. Not anymore.

Almost 16 million square feet is currently listed as available in large blocks in 68 office buildings in Manhattan, according to Colliers ABR, a commercial brokerage firm. That is nearly double the space available a year ago, both in terms of the number of large office blocks — which in New York usually means 100,000 square feet or more — and in terms of total square feet.

Those figures are widely expected to go much higher, said Robert L. Sammons, the managing director of research for Colliers ABR. He said it was difficult to get a handle on exactly how much space financial companies alone might put back onto the Manhattan office market over the next year or so.

“Honestly, I don’t think any of these financial firms know how this is going to play out,” he said. “They are trying to figure out how many people they will need on staff, and in some cases how they are going to stay in business.”

Pending layoffs in the financial industry certainly account for some of the space on the market. But there are other factors. Some companies are moving into new headquarters — which were first planned years ago — while others are disposing of real estate that they came into through acquisitions.

By far the biggest increase in availability has been in the sublease market. Currently, at least 16 large office blocks are being marketed for sublease in Manhattan, up from just 3 listed at this time last year, according to Colliers ABR.

Michael Colacino, the president of Studley, a real estate brokerage firm that specializes in representing office tenants, said the sublet space that had come onto the market recently was attractively priced.

He said some tenants might do better by shopping the sublet market rather than trying to renegotiate a better rent with their current landlords. “A lot of landlords are still in denial,” Mr. Colacino said, “but the sublease space is priced realistically for the actual market conditions.”

Mr. Colacino estimates that the actual rents on deals signed in the last three months are down by as much as 20 to 30 percent from the going rents at the end of the summer — to around $75 to $80 a square foot annually in Midtown and around $45 a square foot downtown.

Among current offerings — including both subleases and direct leases from owners — roughly a quarter of the space in the Midtown and downtown office markets became available because a financial company either did not renew its lease or decided to market the space for sublet.

But the picture could become much starker next year. Among large office blocks that brokers expect to hit the market, Mr. Sammons estimates that the financial industry will account for roughly one-third of the new space coming on the market in Midtown and more than half of the new space downtown.

Lehman Brothers, Merrill Lynch and Deutsche Bank all have leases that Mr. Sammons counted among the potential new listings of large office blocks. And that list does not include Citigroup — although the banking giant has announced that it will lay off more than 50,000 employees worldwide — because Mr. Sammons said it was too soon to know if Citigroup would give up any large office blocks in Manhattan.

So far this year, brokers say, the main event in Midtown has been the completion of One Bryant Park, a 54-story office tower that recently opened at the corner of 42nd Street and the Avenue of the Americas.

As the main tenant, Bank of America, which is based in Charlotte, N.C., moves employees into this new building, it is giving up earlier leases for hundreds of thousands of square feet in other prominent Midtown office buildings, like 9 West 57th Street. Brokers also widely expect the bank to offer for sublet more than 300,000 square feet that it currently leases in 50 Rockefeller Plaza.

JPMorgan Chase has already put some large blocks of space on the sublet market near its world headquarters, at 270 Park Avenue, between 47th and 48th Streets. Chase is marketing sublets for 140,000 square feet at 320 Park Avenue, and 195,000 square feet at 237 Park Avenue. The bank acquired the lease at 237 Park Avenue when it bought Bear Stearns in March.

Chase plans to keep the former Bear Stearns headquarters, though, which is at 383 Madison Avenue, between 46th and 47th Streets. Chase plans to move its investment banking unit into that building, which is just one block from its own headquarters.

“We are looking to make the most economical use of the space that we have for our employees, businesses and shareholders,” said Darlene Taylor, a spokeswoman for JPMorgan Chase.

Downtown, some large blocks of space are expected to become available late next year, when Goldman Sachs completes its new 2.1-million-square-foot 43-story world headquarters at 200 West Street in Battery Park City. When Goldman starts moving into its new building, it plans to allow earlier leases for more than 1.5 million square feet in Lower Manhattan to expire. The bank is also marketing for sublet 600,000 square feet of space that it leases at 77 Water Street.

There is also a great deal of speculation swirling around the ultimate destination of Merrill Lynch, which is to be acquired by Bank of America. The merger could close this month or early next year.

Some brokers suggest that Bank of America might decide to move Merrill Lynch from its headquarters at 4 World Financial Center, where Merrill leases 2.1 million square feet, to be closer to the bank’s new Bryant Park headquarters. If that happens, it would shift even more of the financial industry from Wall Street to Midtown, following what has been a long-term trend.

Copyright 2008 The New York Times Company. All rights reserved.