New York Market Overview

Class B and Class C availability also increased last month, pushing the overall Manhattan vacancy rate to 13.1 %, its highest level since reaching the same rate in December 1996. Meanwhile, the average asking rent for Class A space fell to $65.43 per square foot in May, down 4.9 percent from $68.83 a foot a month earlier.

The amount of office space leased in Midtown crept up in May, but remained less than half what it was in the same month last year. There was 620,000 square feet leased in Midtown last month, up from 490,000 square feet a month earlier, but far below the 1.16 million square feet leased in May 2008.The availability rate, measuring the amount of space that will be available for a tenant build out within 12 months, rose to 15.2 %, from 14.8 % in April. Downtown office market has held up better than the other two Manhattan markets in the current recession, but that will change as beleaguered financial firms return space to the market. Leasing volume rose in the Downtown market while falling in both Midtown and Midtown South. While all three markets showed declines in average asking rents and increases in availability rates, the Downtown results were the healthiest. In Manhattan overall, average asking rents fell to $55.95 per square foot in April, a 2.4 percent drop from the month earlier, and the availability rate, which measures space being actively marketed that will be available within 12 months for tenant build-out rose to 13.8 percent, up from 13.3 percent in March.

Midtown office leasing, which has taken the brunt of the current economic downturn, will see a flurry of expiring leases in 2010, which will help reverse the dearth of activity. Midtown will see a large increase in leasing activity in 2010 when 1,380 leases totaling 20.3 million square feet expire. The Midtown office market, with 34 million square feet available for leasing, has seen an average price cut of 16 percent for 16 million square feet of that space since September 2008.

The country's commercial real estate market is unlikely to recover until 2017. Until then, commercial real estate values could fall by more than 50 percent from their 2007 peak. In New York, rents are already down about 50 percent if free rent and other incentives are factored in.

The default rate on commercial mortgages held by U.S. banks may rise to the highest rate in 17 years in the fourth quarter as debt for refinancing remains scarce and rents fall. The rate is expected to reach 4.1 percent by the end of the year. The projection expects defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of loans held by U.S. banks in the first quarter. Commercial defaults are already at a 15-year high after climbing to 2.3 percent in the first quarter.