CBRE says job cuts won't be catastrophic

Real Estate Weekly, Oct 15, 2008 by Daniel Geiger

The real estate services firm, CB Richard Ellis made its case at a breakfast held in the company's Park Avenue offices yesterday that Manhattan's office market won't tank despite a crisis of historic proportions in the financial sector.

Simon Wasserberger, a senior vice president at CBRE, said that the city's real estate market had seen such low vacancy rates in recent times that even large layoffs wouldn't bring rents crashing down.

Wasserberger said that if the city lost 150,000 jobs, more than what he said most experts predict will be let go, the average vacancy rate in Manhattan would rise to 12.5%. That's more than double its current rate of 6.1% according to CBRE data, but far from the deterioration that past recessions have caused in the city, Wasserberger said, which brought vacancy levels into the high teens and beyond 20% in some areas of Manhattan.

A more likely scenario is that the city will lose about 100,000 jobs Wasserberger said, layoffs that will result in more modest amounts of sublease space and other availabilities. Vacancy would climb to just below 10% and cause a commensurate--but far from dramatic--weakening in average rental rates.

"The sale of the Neuberger Berman unit not only took that space off the market, they're negotiating for two additional floors in that building," Siegel said. "They're not subletting, they're growing."

Neuberger Berman is located in 605 Third Avenue. Barclays purchased Lehman's headquarters, 745 Seventh Avenue, as part of its deal to absorb the company and has said that it will continue to occupy that building in full.

Only space that Lehman had at 399 Park Avenue is expected to come available, a fraction of the company's Manhattan footprint.

But even Siegel admitted that there were still unanswered questions. "We suspect there will be less leasing velocity," he said. "We don't know what will happen with Merrill, how much of that space is taken away because they don't use the units, how much of that comes to midtown because Bank of America wants them near where they are?"

Bank of America purchased Merrill Lynch for $50 billion in September as Merrill was negotiating to extend its lease at the World Financial Center. Real estate experts have murmured how much of Merrill's operations the bank will shed even though the merger was thought to produce little redundancy.

Bank of America also has the option to bring some of Merrill's operations into a space in midtown it is vacating, 114 West 47th Street, near the bank's new headquarters at One Bryant Park. Such a move would create vacancy downtown, which could be gaining space due to AIG's troubles, a firm that has over a million square feet in Lower Manhattan.