MANHATTAN office vacancies may rise above 10 percent for the first time since 2003 as the bankruptcy of Lehman Brothers Holdings Inc and sale of Merrill Lynch & Co Inc cut demand and add to supply.
The view comes from the world's two biggest listed commercial real-estate brokers, Bloomberg News reported.
Office vacancy rates in Midtown could go as high as 11 percent by early next year as a result of the Lehman bankruptcy, according to Jones Lang LaSalle, the world's second-biggest publicly traded commercial real estate broker. Lehman occupies 2.7 million square feet (250,840 square meters) of space in New York, including its 1.1 million square-foot headquarters on 7th Avenue at 47th Street.
Vacancies could top 10 percent next year, Raymond Torto, chief economist at CB Richard Ellis Group Inc, the largest commercial broker, said in an interview. "In our forecast, we had vacancy rates rising to the high single digits. This is just going to add a little bit more to that softening."
Shares in Merrill landlord Brookfield Properties lost 18 percent on Monday in New York trading, its biggest drop in eight years. SL Green, New York's biggest office landlord, fell a record 20 percent.
Lehman and Merrill own or occupy 8.3 million square feet in New York, according to CoStar Group. A return of some of that space to the market, Torto said, may accelerate a fall in rents and sale prices, which were at record highs last year, and in occupancy rates.
"The Manhattan office market is now in uncharted territory, with events continuing to unfold," CB Richard Ellis said in a statement.
Manhattan, the United States' largest and dearest office market, had the lowest vacancy rate at the end of the second quarter, 5.3 percent.
Offices available for sublease rose to 8.3 million square feet as of mid-June, a 33-percent jump from mid-January, according to New York-based broker Studley Inc.
After the September 11, 2001 attacks, vacancies rose as financial firms gave back or subleased hundreds of thousands of square feet of offices they had held to accommodate expansion.
Lehman rents nearly 500,000 square feet in both the Time & Life Building at 1271 Avenue of the Americas, owned by Rockefeller Group, and at Citigroup's base at 399 Park Ave, which is owned by Boston Propertie.
Merrill owns or rents 5.8 million square feet in Manhattan, including 4.2 million square feet at its World Financial Center headquarters.