The shrinking of Manhattan’s once-robust financial services footprint is dampening the mood among top real estate executives who spoke yesterday during an annual real estate investment trust conference in Midtown. While the CEOs and presidents of firms such as SL Green Realty, Vornado Realty Trust and Boston Properties, generally said the cutbacks had not hurt their own companies, they acknowledged the weak financial services industry hobbled the overall leasing market.
Those REITs were among the more than 100 real estate investment trusts that were scheduled to make public comments and take questions from the audience yesterday and today at the annual conference known as REITWeek, held this year from June 12-14 at the Hilton New York in Midtown. The event is hosted by the Washington, D.C.-based National Association of Real Estate Investment Trusts.
Marc Holliday, CEO of New York’s largest office landlord, SL Green, told investors that office rental rates are generally flat, in part because the occupancy needs of financial firms in Manhattan is stagnant. Financial services make up about a third of the office space occupied in Manhattan, but in the first quarter of 2012, financial services only made up just over a quarter of the leasing activity, according to data from the commercial services firm Cushman & Wakefield.
“The financial sector clearly is lagging. We don’t see growth out of that sector – [yet] we don’t see attrition either of a material amount. Until that sector really does pick up, we won’t see the 6 (percent) or 7 percent vacancy rates we have seen in prior peaks,” Holliday said.
The Manhattan office vacancy rate at the end of the first quarter of 2012 was 9.1 percent, Cushman figures show.
The president of Boston Properties, Douglas Linde, underscored that financial firms were lagging.
“The financial services industry is clearly the one sector that has seen the least amount of positive things going on, over the past 12 months,” he said. “So a city like New York City is clearly not befitting from that type of activity.”
The starkest evidence of the change in financial services in Manhattan is seen in Brookfield Office Properties’ four World Financial Center office buildings in Lower Manhattan. The company has about 3 million square feet currently leased to financial services firms like Bank of America that will become vacant in late 2013. Yet incoming Brookfield CEO Dennis Friedrich said as much as 50 percent of that space could be leased to media or other non-financial services firms.
And Michael Fascitelli, CEO of the city’s second largest office landlord Vornado, said during his presentation that leasing activity in the city was slow overall, impacted by the big banks.
“Without the financial services firms really growing, [the market] hasn’t had that kind of kick or spice that we typically see [during a recovery],” he said.