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NEW YORK CITY-Manhattan’s class A office vacancy rate is its highest in three years, according to a new report from Colliers ABR, while Newmark Knight Frank says the borough’s availability rate is the highest since late 2005. A slightly earlier nationwide office forecast from NKF says improvement in the pace of business won’t come earlier than the second half of 2009.

The Colliers report, issued on Tuesday, says that Manhattan’s class A vacancy rate climbed 70 basis points to 8.7% in November, the highest since the 9% figure recorded for September ’05. In Midtown, the vacancy rate reached 9.3% in November, up from 8.5% in October and the highest since the 9.8% of August 2004, according to Colliers. Availability was up in all six Midtown submarkets, with the Plaza district crossing the 10% threshold for the first time since January ‘05.

Midtown South’s availability rate increased at a lesser rate, up one percentage point to 9.5% with 175,225 square feet added back to the market. More than one-third of the 2,710,711 square feet added back to the Downtown market YTD occurred in November, with 1.11 million square feet of negative net absorption during the month.

Sublease availability shot up 11.5% during November alone and is up 149% YTD while direct availability jumped 6.3% during November, a YTD increase of 37.4%, according to Colliers. November saw a number of significant leasing deals; however, according to Colliers, they were generally either renewals, such as Viacom’s 1.3-million-square-foot deal at 1515 Broadway, or “no growth” relocations.

In the NKF report issued last Friday, Manhattan’s overall availability rate rose from 10.3% at the end of October to 10.9% by November’s end. Since the beginning of 2008, the availability rate has increased from 8.3%, up 2.6 percentage points, according to the NKF report.

An aggregate of 2.59 million square feet came back onto the Manhattan market in November, bringing YTD net absorption to 9.68 million square feet, according to NKF. Although the vacancy rate remained unchanged at 6.3%, “with employment dropping, the intensity with which space is used has fallen,” the report states. “As a result, the amount of vacant space will continue to move higher.”

The average asking rent in Manhattan dropped to $57.49 per square foot from $59.81 per square foot in October, down sharply from the peak of $65.75 per square foot last February. The NKF report attributes the decline to a major drop in sublet rents, which fell more than $4 per square foot in November to an average of $52.11 per square foot. Direct rents declined by a more modest $1.51 per square foot, to $59.34 per square foot.

“Effective rents are even lower, as landlords step up concessions, such as free rent and build outs,” the report states. “Turnkey installations have the greatest attraction to tenants, as their capital expenditure budgets have been trimmed.”

Looking ahead to next year, NKF’s national report from late November offers this forecast for Manhattan: “With activity in virtually all segments of New York City’s financial industries down significantly, improvement in the pace of business will not likely happen before the second half of ‘09 at the earliest. Total office sector employment could fall by 5% to 6% before the recovery begins and close to four million square feet of new space will likely come on line in ’09 or early 2010.”

Asking rents will decline substantially next year, NKF says, with the average for ’09 at least 10% lower than the average level in ’08. “The peak-to-trough decline in asking rents will be much larger, and the fall in effective rents will be larger again.”

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