The long-expected return of unneeded office space to the Downtown market by large financial firms may push vacancy rates up by two-thirds, a Cushman & Wakefield expert in the market said today.
Andrew Peretz, executive director at commercial services firm Cushman & Wakefield, predicted the vacancy rate, now at 9.6 percent Downtown, could reach 15.75 percent, a jump of 64 percent.
That increase in the vacancy rate would drive down prices, he said.
“I do think there will be a decrease in asking rents over the next two or three quarters,” Peretz said. He was speaking this morning at the firm’s fourth-quarter market briefing at the company’s Midtown headquarters.
For Manhattan overall, the situation was not as bleak, although prices may not rise for more than a year and a half, Cushman & Wakefield COO Joseph Harbert said at the same event.
He said the overall office market should hit bottom in six or seven months, for a total asking rent decline of 30 to 32 percent, only a few percentage points below the current rent levels. He does not expect the Manhattan vacancy rate, now at 11.1 percent, to top 12.5 percent.
The overall office vacancy rate in Manhattan was at 11.1 percent in December, a modest decline from 11.3 percent in November, the Cushman data show. For the entire fourth quarter, average asking rents in Manhattan fell to $55.52 per square foot from $57.08 per square foot in the third quarter, and were down 24 percent from the peak of $72.97 in the third quarter of 2008, the company said.
In other statistics hinting at a market uptick, the 3.5 million square feet of new leasing in Midtown in the fourth quarter was just 10 percent shy of the six-year average of 3.9 million square feet. That 10 percent was an improvement from the third quarter, when the 3.4 million square feet leased was 34 percent below the quarterly average of 5.2 million square feet, Cushman figures show.
Also, net effective Class A office rents in Midtown showed an uptick of about $2 per square foot in the fourth quarter to about $52 per square foot, the company said.
But that uptick may be pyrrhic, Harbert said.
“It is a slight increase. We are not sure if it is a real trend or an anomaly,” Harbert said.