financial markets

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As the industry knows, all brokerage firms gather their datadifferently, so statistics and findings will vary. CB RichardEllis' Q2 2008 report shows office rents rising slightly from Mayto June. Overall Manhattan asking rents rose from $71.35 per sf inJune from $71.25 in May, as availability rose to 9% from 8.9%, andabsorption improved to negative 0.25 million sf from negative 0.37million sf. June was a strong month for leasing activity,especially Downtown, with large leases such as American InternationalGroup's 803,000-sf lease at 180 Maiden Ln, amongothers.

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According to Grubb & Ellis, the office market reached itspeak in the real estate cycle during the first quarter, asavailable supply continued to increase and demand for spaceremained sluggish. In the second quarter, the overall vacancy rateclimbed 70 basis points from the first quarter to 5.6%, the largestone-quarter vacancy increase since the fourth quarter of 2001. Thefirm says that negotiations are still in the landlords' favor, buttenants are beginning to gain some leverage when compared with thelast three years. "Concessions in Midtown have already increasedcompared to this time last year, with an average of an additional$3 per sf in work being offered and one to two additional freemonths of rent included in the lease," the report says.

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[IMGCAP(2)]Jones Lang LaSalle's report also shows that averageasking rents have moved higher, however they note that the pace atwhich they are rising has slowed. James Delmonte, vice presidentand director of research, at JLL, also sees a rise in concessionpackages. "In the first half of 2007, class A rents rose citywideby more that 18%. During the same time period this year, rents haveincreased by just under 4.5%. Current market conditions are beingreflected in changing landlord concession packages." Delmonte saysthat "it appears the second half of 2008 will be a difficult periodfor the Manhattan office market. Although the New York officemarket is still technically within equilibrium, the overall vacancyrate has increased every month since January 2008."

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Delmonte continues that "the amount of available class A spacein Midtown alone has increased by two million sf during the past 12months. However, the increased availability of large blocks ofspace may finally mean more choices for Midtown tenants with spacerequirements of more than 200,000 sf."

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Grubb & Ellis also sees an increase in available largeblocks of space—60 exist in excess of 100,000 sf, more than doublethe amount available one year ago. "Also, tenants have placed morethan 1.5 million sf of sublease space on the market since the startof the year."

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[IMGCAP(3)]Cushman & Wakefield's report shows that despitean increase in vacancy, average asking rents continued to increase.According to Joseph Harbert, COO of the New York Metro Region forCushman & Wakefield, "leasing activity is nearly on par with2007, no doubt due to the number of large leases signed during thefirst half of the year," he says, referring to the 21 leases ofmore than 100,000 sf completed in the first six months of 2008. Atthis time last year, only 13 such leases had been signed.

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Grubb & Ellis shows that demand for space has slowed, withleasing velocity through the first six months of the year down 19%compared to the same time last year. "The drop in demand isattributed mostly to the cutback in leasing from the financialservices sector," the report says. "In fact, this industry has beenthe primary seeker of space over the past seven years, and hasaccounted for more than 30% of the markets activity. This sectorhas scaled back space requirements, and has only participated in20% of the sf leased this year." C&W agrees that just one yearago, the industry accounted for more than one-third of all leasingactivity in Manhattan, however their firm finds that financialservices accounted for only 14.1% of leasing activity thisyear.

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[IMGCAP(4)]CBRE addressed the financial services sector at itsQ2 report, noting that although hit hard by the economy, financialfirms have not been shedding space at a level proportionate withlayoffs, noting that the space shed is roughly one-third less thanstandard industry benchmarks might suggest. CBRE says that,according to reports--not CBRE estimates--there have been roughly20,000-financial-firm-layoffs in Manhattan thus far, but they havedumped only 1.4 million sf on the market.

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"The Manhattan office market continues to be resilient assecond-quarter absorption and leasing showed improvement over thefirst quarter, and relocation transactions combined with renewalactivity has been close to 2007's levels," says Howard Fiddle, vicechairman of CBRE. "However, while the spread between asking andtaking rents year-over-year remains essentially flat Downtown, weare beginning to see a slight widening in the spread in Midtown andMidtown South, indicating tenants are wielding more clout in leasenegotiations."

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.