Manhattan Rents Fall / Office Vacancies Rise

A: Just passing along the latest. This is all not new and the process is a healthy one. I wouldn't be surprised if stabilization shows up in one of the next two quarterly reports.

Bloomberg reports, "Manhattan Rents Fall More Than 8% on Unemployment":

Manhattan apartment rents fell as much as 8.9 percent in the third quarter from a year earlier as rising unemployment cut demand, Citi-Habitats Inc. said.

Average rents declined for all apartment sizes as landlords offered concessions to tenants, the New York-based property broker said in a report issued today.

“The only way you can create demand is to make the market and the way you make the market is adjust the prices accordingly,” Gary Malin, president of Citi-Habitats, said in an interview.

Rents for studio apartments fell 8.2 percent to an average of $1,760. One-bedroom units dropped 8.8 percent $2,423. The cost of renting two-bedroom apartments declined 8.9 percent to $3,381 and three-bedrooms fell 7.9 percent to $4,591.

The rates reflect some, but not all, of the concessions offered by landlords, including a month of free rent, Malin said.

Its the concessions that are key. These reports don't accurately reflect the full concessions being offered by landlords to fill vacancies and get leases renewed. The most common of course is offering 1-2 Months Free Rent and then asking the tenant to sign a 13 or 14 month lease. For those using brokers, it may be a free month rent and a reduced or eliminated broker fee; or other combination of the two. Either way, this process is a very healthy one and I'm sure we will see some signs of stabilization in one of the next two quarterly reports. Our adjustment was fast and fierce and lower prices will revive demand over time. Here is a snapshot of neighborhood vacancy rates and then the average vacancy rate trend provided by Citi-Habitats September 2009 Rental Market Report:



Wow, check out the vacancy rate of the Upper East Side jumping to 2.49%! Bloomberg then gets into how "Manhattan Office Vacancies Reach Five-Year High":

Manhattan’s third-quarter office vacancy rate hit a five-year high as unemployment rose and companies gave up space in the recession.

The rate rose to 11.1 percent, the highest since the third quarter of 2004, New York-based broker Cushman & Wakefield Inc. said in a statement today. Rents fell 5.2 percent from the second quarter to $57.08 a square foot and were down 22 percent from a year earlier.

Sublease space declined to 11.1 million square feet from 11.4 million at mid-year, the first drop since the end of 2007, Cushman said.

“This is probably an indicator that you’re starting to see a market starting to bottom out,” said Joseph Harbert, chief operating officer for Cushman’s New York metropolitan region. “I would look at that as a harbinger of what’s to come. We’ve got a ways to go.”

Falling rents, rising vacancy rates: these are two more reasons why inflationary worries right now are misguided.

The consumer is still repairing their balance sheets and dealing with a tough labor market. The Fed is continuing to engineer a bank recapitalization environment even as some asset values feel like they are getting a bit frothy. The idea is to cushion the deflationary blow, cushion the hit to the economy and allow banks to re-organize themselves and try to earn their way back to health. Do we really want banks to go crazy lending to consumers in a deteriorating credit and rising unemployment environment? No, we dont. The system needs to purge itself of the excess that came with credit binge over many many years. In the meantime, each half off sale that we hear about (i.e. California Hotel Foreclosures Triple in first 9 months of 2009) will result in its own deflationary whiplash as the new owner has a much more efficient operating environment with way less debt in which to run the existing business.