Voltron says: one reason why SRS is back above $100 . . .
By David M. Levitt and Daniel Taub
June 27 (Bloomberg) --
Average rents fell to $69.29 a square foot annually, and rents for Class A office space declined 4.4 percent, to an average $90.65 a foot, according to a preliminary report by Studley. The broker blamed a ``malaise'' among Wall Street securities firms, which hadn't previously stopped the rise in rents. The full report will be released next week.
``We're really starting to see the culmination of what people have been expecting to occur since the fourth quarter of last year,'' Steven Coutts, Studley's senior vice president for national research services, said in a telephone interview. ``It's the result of the whole chain of events, from the subprime to financial jobs being lost in the city. In some cases, it's starting to affect secondary industries. We're starting to see a slowdown in advertising and publishing.''
More than 9,000 jobs are being eliminated at New York-based Bear Stearns Cos., acquired this month by JPMorgan Chase & Co. New York has lost 10,000 financial services jobs since last August, a 3.5 percent fall, according to the Bureau of Labor Statistics in Washington.
An increase in space offered for sublease, which had been ``contained'' before mid-March, ``was the critical catalyst that moved the market in the second quarter,'' Studley said.
Sublet space available for rent was at a low of 6.2 million square feet (576,000 square meters) in mid-January, surged to 7.8 million square feet in late March, and reached 8.3 million square feet by the middle of this month. While the amount of space for sublet jumped by almost a third since mid-January, the new space available still is less than a third of what
A rising amount of space available for sublet can cut rental rates because landlords have to compete against tenants who would rather lease at a low price than lose money on empty space.
``A subletter will drop their price much more quickly than a landlord,'' said Ruth Colp-Haber, a partner at Wharton Property Advisors, a New York-based tenant representation firm. ``A landlord needs to keep their rents high to justify their financing, to justify their whole existence.''
The supply of ``big block'' space, or contiguous areas of 50,000 square feet or more, has almost doubled since its low a year ago, Studley said. The big-block supply rose to 7.6 million square feet from 4.5 million square feet in midtown
Those numbers ``understate the range of space that is actually available for lease,'' because almost 3.5 million square feet of additional space that hasn't been being publicly marketed ``is rumored to be in play,'' Coutts wrote.
Large landlords such as SL Green Realty Corp. and Vornado Realty Trust are likely protected against rent declines because their occupancy rates tend to be higher than the market average, and their tenants are on long-term leases, Coutts said.
Drop in Values
Declining rents will reduce the value of their properties, he said.
``Even though they're not feeling the pain as far as rent roll right now, ultimately the value of the properties are affected because of the fact that the expectations of increased rent upon lease rollover are absolutely coming down,'' Coutts said in the interview.
Shares of landlords with significant office holdings in
``This downturn started in the financial sector, the heart of