World Financial Center

NEW YORK CITY-The 4,000 layoffs Merrill Lynch announced yesterday, coupled with a $1.96-billion Q1 loss, is a continuation of problems in the financial services sector. But what do those lost jobs mean from an office-leasing perspective?

On the surface, not that much. The layoffs are not taking place in any particular region of the country, a Merrill spokeswoman tells, and they are a small portion of the firm’s 63,100 people that it employed at the end of the quarter.

And “that doesn’t mean we are going to stop hiring people,” the spokeswoman says. “It’s not going to be a hiring freeze.” In fact the company, which is located here in the World Financial Center, is adding employees overseas as it grows its foreign business, she says.

Layoffs in the financial sector have totaled 127,000 in the last three months, says Maria Sciola, executive managing director of research at Cushman & Wakefield. She is forecasting a total of 250,000 to 300,000 for the balance of the year, which is down from previous recessions, such as the 1.2 million in 2001 and 320,000 in 1990.

However, this year’s layoffs could still lead to a national vacancy-rate rise of about 100 basis points, from the current 9.9% in CBDs, to 11% to 12%. Suburban offices, currently at 14.7%, could increase to about 16%, she says.

“We are starting to already see an slight uptic in vacancy rates,” she says. “It will be more severe in some places than others.” Manhattan, where most financial services are based, will get hit the hardest, though vacancy here is more than 3% less than the national average. Washington DC could feel a pinch, as that area has a lot of office construction taking place, she says.

The good news, says Jan Svec, a Fitch Ratings director who covers the REIT industry, is that there is not a lot of new supply on the market right now and development slowed down in recent years due to high land prices fueled by the former residential boom. She adds that some expanding publishing companies could take up vacant space.

But that doesn’t mean the layoffs are welcome.

“All of these layoffs are creating a tone of uncertainty,” she says, adding that the situation is “slowing down leasing velocity.” “People are still trying to figure out what the impact is.”