In another ominous sign for commercial real estate lenders, Manhattan office rents fell by a record 7.4% in the second quarter as landlords adjusted to job losses and fallout from the shrinking financial services industry, the property brokerage Cushman & Wakefield Inc. said.
Rents declined to $60.23 a square foot from $65.01 in the first quarter, Cushman, which is based in New York, said in a report released Tuesday.
The vacancy rate rose to 10.5%, up from 9.6% in the first quarter and 7.1% a year earlier.
Demand for office space is falling as the city has lost 108,000 jobs since August 2008, according to figures from city Comptroller William Thompson.
More than 11 million square feet of space was available for sublease in the second quarter as financial firms sought to shed offices they no longer needed.
"We saw a tremendous increase in sublease space in the first quarter and that space was priced very aggressively," Kenneth McCarthy, Cushman's director for New York research, said in an interview.
"So landlords were forced to meet that, and as a result they lowered their rents."
The second-quarter rent decline exceeded the 6% drop in the first quarter. That was biggest drop in Cushman records, which go back to 1984.
Vacancies are being driven by the recession and mortgage-related losses and writedowns which led to the bankruptcy of Lehman Brothers, the demise of Bear Stearns Cos. and the takeover of Merrill Lynch & Co.
The Manhattan office market showed "some signs of relative stability" in the second quarter, a trend that has continued into this month, McCarthy said.
June was the first month since February 2008 in which the vacancy rate did not rise. It was little changed from May.
Vacancies almost doubled from 5.8% during those 16 months, according to Cushman.