New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For Impact

Tyler Durden's picture




 

Traditionally, when it comes to reading behind the manipulated media's tea leaf rhetoric and timing major inflection points in the economy, the most accurate predictor are financial firms, whose sense of true economic upside (or downside) while never infallible, is still better than most. Yet unlike employment, which is usually a lagging, or at best concurrent indicator, one aspect that has always been a tried and true leading indicator, has been real estate demand, in this case rental contracts. Due to the long-term lock up nature of commercial real estate contracts, firms are far less eager to engage in rental transactions (and bidding wars) when they expect a worsening macroeconomic environment. Which is why news that office vacancy in Manhattan's Plaza district, the area between Sixth Avenue and the East River from 47th to 65th streets, anchored by the landmark Plaza Hotel at Fifth Avenue and Central Park South which is home to some of the nation’s most expensive and prestigious office towers, and where America's largest hedge funds and PE firms have their headquarters, has just risen to 12.3%, or a two year high, is probably the most troubling news for the economy and a real indicator of what to expect of the immediate future.

From Bloomberg:

The availability rate for offices in the Plaza submarket reached 12.3 percent last month, a two-year high, as space leased to Citigroup Inc. and General Motors Co. went on the market, according to data from brokerage Colliers International. It was 10.5 percent in the third quarter of last year.

If there is any indicator of financial firm demand for property, and thus their outlook on future prosperity, it is the state of the Plaza real estate market:

About 30 percent of the market is financial-service firms, which have announced about 60,000 job cuts worldwide this year, according to data compiled by Bloomberg.

 

“The Plaza’s weakness is symptomatic of a larger problem,” said Michael Knott, a real estate investment trust analyst with Green Street Advisors Inc. in Newport Beach, California. “Manhattan’s economic engine is not firing, and that, of course, is finance.”

 

Office owners in the Plaza district have historically sought higher rents than in the rest of Midtown, even if it means leaving space unleased for longer. Asking rents averaged $80.74 a square foot at the end of August, the highest in midtown Manhattan, where the average is $71.28, according to Colliers. Midtown Manhattan rents are the most expensive of all U.S. business districts.

 

The Plaza area is so pricey because securities firms, hedge funds and money-management companies want to be near one another in New York’s top buildings, said Joseph Harbert, president of Colliers’ eastern region. The park, hotel and the Fifth Avenue and 57th Street shopping corridors are draws, as well as the idea that “it is close enough to transportation but not in the midst of all the congestion of Grand Central” Terminal, Harbert said in an e-mail.

Needless to say, the primary driver of the surge of vacancy, is ongoing corporate downsizing coupled with collapsing tenant cash flows.

Those are GM’s last offices in the building, said Laura Toole, a company spokeswoman. The staff of about 200 has been relocated to smaller offices at 1345 Avenue of the Americas, she said.

 

The GM Building offices “were sized for about 500 people,” Toole said. “So we’re going to a smaller, right-sized space, which in the end we hope will result in a significant savings for the company.”

 

“We’re still seeing a lot of interest from smaller financial-service
firms,” he said. “It’s not a growth industry for the large financial
firms today.”

 

Kozel said he expects the Plaza district’s availability rate to tick higher in the coming months as financial firms continue to reduce staff, citing Deutsche Bank as an example. The Frankfurt-based company said on Sept. 11 that job cuts will exceed the 1,900 it announced in July, and it will reduce regional back-office functions.

 

“The Plaza district will come back again,” said Hennessy of Cassidy Turley. “This may be somewhat of an aberration in the marketplace. How often is the Plaza the weakest market in Midtown? We need some stability both in Europe and in the United States, and we need some certainty about what our tax environment is going to look like going in post-2013.”

The reason why landlord REITs and other entities can keep rents as high as they want even as vacancy rates soar is that the funding cost in a ZIRP environment is virtually nil.

Some of the biggest U.S. REITs own or have stakes in real estate in the district, including Boston Properties Inc. (BXP), which controls the GM Building and 601 Lexington. At the GM Building, the Detroit-based automaker’s asset-management unit is leaving 114,000 square feet, which it has put on the market as a sublease. That is one of the Plaza district’s largest new vacancies, according to Kozel of Colliers.

 

Office owners are still getting top dollar in the Plaza district. The spread this year between rents landlords achieved there and those in Midtown overall is 17.2 percent, the highest in records dating to 2002, according to CompStak Inc., a New York-based leasing data service.

 

Rents tend to take awhile to adjust to higher vacancies, Harbert said.

Of course, under ZIRP, it will take much, much longer, before a true clearing market manifests itself. As a result, there is little opportunity cost to keep space unoccupied as there is little required cash outflows. It also means that many skyscrapers in what was once NY's most desired area, are now half empty.

“Right now, Midtown just isn’t cool,” Jason Pizer, president of Trinity Real Estate, a landlord in the area, said last week at a forum sponsored by Bisnow Media, a publisher of online business newsletters. “The people who come to our buildings, they use words like ‘dude’ and ‘totally.’ They pound you, they don’t shake your hand. And right now, those are the ones making the space decisions.”

 

In the Plaza district, about 234,000 square feet leased to Citigroup at 666 Fifth Ave. went on the market in August. That building, a 41-story skyscraper at West 53rd Street, has almost 500,000 of its 1.5 million square feet available, according to Cassidy Turley, a St. Louis-based commercial-property brokerage with offices in New York.

 

The tower housed Citigroup’s private-banking operation, which has relocated to the bank’s offices at 601 Lexington Ave., the skyscraper formerly known as Citigroup Center, which is part of the Plaza District.

 

Vornado Realty Trust (VNO), which co-owns 666 Fifth with Kushner Cos., declined to comment, said Wendi Kopsick, a spokeswoman. The New York-based REIT is overseeing the search for new tenants.

The building in question is 666 Fifth. This is ironic, because it is the same building we discussed years ago, and was captured in one of our first posts, when we began our narrative of the Second Great Depression. Nearly four years ago we said:

Looks like the commercial mortgage apocalypse is about to claim its next victim, this time in the form of the appropriately numbered 666 Fifth Avenue building, home to such previously flourishing tenants as Citi Private Wealth Management. Now that private wealth is no more, Citi has decided to take a hike and has so far vacated over 80,000 square feet of space (and since it has over 482,000 sq feet in the building, one can bet it has a ways to go). As a result, the building's DSCR (or ratio of rent generated to interest owed for us non mortgage bankers) has fallen to an abysmal 0.69. Even when taking into account the $98 million (or much less) reserve fund the building has set aside to cover rent shortfalls, one can assume it won't be long before the 666 insignia again prominently graces the roof, especially since it would have to replace a laughable Citi sign.

Sure enough, in the end we were once again proven right. And had it not been for the now ubiquitous manipulation of every market by the Federal Reserve, this prediction would have been validated long ago. Yet while under the New Normal one can dilute cash infinitely, one can never print actual cash flows, economic growth, and true wealth. It is the last three, or rather their absence, that is once again starting to become felt by everyone, and certainly the critical, and most "marginal", sector of the economy.

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 09/29/2012 - 13:21 | 2841675 LetThemEatRand
LetThemEatRand's picture

Interesting contrast to the other story today about how much tax money has been funneled to the top of the banking firm heap.  Just trickle up as usual.

Sat, 09/29/2012 - 13:40 | 2841687 Precious
Precious's picture

That's just so fucking tragic. Our hearts go out to them and their realtor MILF whores.  

They just don't know how to sell to their potential new tenants, who make billions from writing PHP and are more into iPhones than Louboutins.

Sat, 09/29/2012 - 14:45 | 2841842 Kobe Beef
Kobe Beef's picture

"jump"?

"impact"?

Jump, you fuckers. May your bellies burst like an overripe magnum of champagne. And we shall wash your remnants into the gutters with our own piss. Would that there would be enough of your heads left to stick on a pike.

 

Sat, 09/29/2012 - 21:08 | 2842450 Cathartes Aura
Cathartes Aura's picture

ha!  the picture posted with this put me in mind of just those words - JUMP, you FUCKERS!!

upvote for beating me to it!

Sat, 09/29/2012 - 15:09 | 2841881 Taint Boil
Taint Boil's picture

 

 

........realtor MILF whores: priceless, had to Google Louboutins

Sat, 09/29/2012 - 19:48 | 2842338 cynicalskeptic
cynicalskeptic's picture

Hedge fund guys are staying near home in Greenwich - Connecticut has a lower tax rate than NY (and  commuting ion the New Haven line is no fun - overhead power lines are problematic in hot and cold weather)

Not unusual - most corporate relocations are for the conveniece of the top execs.

Sat, 09/29/2012 - 13:23 | 2841680 LawsofPhysics
LawsofPhysics's picture

Time for another strange structure fire that collapses these buildings (miraculously into their own footprint).  I am sure AIG and Goldman Sachs have a good policy on the buildings that the taxpayer can cover (again).

Sat, 09/29/2012 - 16:16 | 2842013 mvsjcl
mvsjcl's picture

Ahh. The immutable Laws of Physics. Err, immutable except for on the morning of 9/11, when several Laws were suspended, and innumerable other laws broken. <Sigh>

Sat, 09/29/2012 - 23:51 | 2842656 dhengineer
dhengineer's picture

There are hundreds of buildings in that district.  I don't think American Airlines has enough planes in it's entire fleet to cause all of them to free-fall.

Sat, 09/29/2012 - 13:23 | 2841681 williambanzai7
williambanzai7's picture

On the other hand, billionaire sky condos are going up like there's no tomorrow.

Sat, 09/29/2012 - 13:38 | 2841691 Precious
Precious's picture

The banks are much more efficient at laundering the FED's money anyway.  Pretty soon Neutron Ben, the Don, Bernanke will just tell the banks to save time and print the shit yourselves.

Sat, 09/29/2012 - 15:44 | 2841942 macholatte
macholatte's picture

 

 

“The people who come to our buildings, they use words like ‘dude’ and ‘totally.’ They pound you, they don’t shake your hand.

 

 

 

Jeff Spicoli: People on 'ludes should not drive!

Sat, 09/29/2012 - 19:28 | 2842302 Offthebeach
Offthebeach's picture

There's a app for that.

Sat, 09/29/2012 - 13:35 | 2841715 LawsofPhysics
LawsofPhysics's picture

So money still talks and bullshit still walks.  Funny how some things will never change.

Sat, 09/29/2012 - 13:28 | 2841688 LawsofPhysics
LawsofPhysics's picture

That's a good thing Bill, makes it easier to know where to park or build the guillotines.  Never discourage the arrogant or decedant behavior, much easier when fascists self-identify.

Sat, 09/29/2012 - 15:16 | 2841888 Papasmurf
Papasmurf's picture

So there's the solution.  Convert these to residential condos.  

Sat, 09/29/2012 - 13:27 | 2841685 dolph9
dolph9's picture

NYC will survive because it's a global city and there's more to it than just finance.  But it's definitely going bankrupt and the Jews and Wasps of Manhattan will have to decide whether it's worth supporting the proles of the outer boroughs.

 

The real question is when will D.C. and surrounding environs go down.  The whole place is a wretched cesspool, and I for one would celebrate as it comes crashing down as it inevitably will.

Sat, 09/29/2012 - 13:31 | 2841700 LawsofPhysics
LawsofPhysics's picture

I am sure life will be great there when the food, water, and power goes down.  Corzine already rehypothicated the farmer's accounts.  Go ahead fuckers, keep up that kind of behavior.  

Long black markets and a totalitarian police state.  Oh wait...

Sun, 09/30/2012 - 08:12 | 2842864 ParkAveFlasher
ParkAveFlasher's picture

By "outer boroughs" you do mean, "the western hemisphere", correct?

NYC is a global clearinghouse and second-hand dealer of both vice and virtue.  NYC "going down" is, has, and will always be a pretext to NYC "going up."  It can be anything at any moment.  This is why the world comes here for what it wants.  China can photocopy it all it wants.  Brazil can fluff up its tits with silicon and botox its lips.  India can flowchart until Kingdom Come, they will not be NYC and they will not be the Northeastern USA.

Location, location, location.

The water flows downhill by gravity, fed by the Hudson Valley's vast aquification.  Local agriculture in the rich valley and environs has great capacity.  Ports are deep and large, Port Elizabeth itself is one of the largest in the nation and the ports are dredging for growth in the Panama Canal.  There are old families with old money after centuries of development and navigating booms and busts.  There are huge stores of underutilized however maintained and well-utility'd industrial space with highly networked transportation lying fallow. The population is dense and rich with options.

What would you like NYC to be?

Sorry to dispel a Chicagoista's or Californicator's silly redemption fantasies of Newf York.  I believe the point of the article is to point out another unhideable financial crisis dead ahead, as implied in the commercial real estate conditions.  Another prelude to crisis is how many new Harvard grads are being hired into financial firms.  The higher that number is, the more likely a crisis is coming.  That's a good one to look up.  Jobs are shed just before crisis, that happens like clockwork.

Sat, 09/29/2012 - 13:30 | 2841694 Inthemix96
Inthemix96's picture

They are only afraid we may make the fuckers jump.

The cunts now all live in bungalows.  Easier for the guillotines mind, no hundred stair cases to drag the fuckers down by.

Sat, 09/29/2012 - 13:33 | 2841697 Insideher Trading
Insideher Trading's picture

I think this is probably more a function of hikes in taxes on capital gains and dividend taxes from the Obamacare legislation.

Currently capital gains tax is 15%; 2013 29%

Tax on dividends currently 15%; 2013 43%

The thing that people don't seem to grasp is that corporations and financial firms don't pay tax. They do one of two things: i. they raise the cost of their product/service and pass the cost to the consumer; ii. Layoff employees or outsource the jobs.

The following article from the NYT from back in June touches on the fact that there is a mini exodus of financial firms from New York to lower cost locales.

http://www.nytimes.com/2012/07/02/business/finance-jobs-leave-wall-stree...

Of course the solution to this will be for New York to raise taxes and do everything imaginable to raise the cost of doing business.

Sat, 09/29/2012 - 13:35 | 2841711 LawsofPhysics
LawsofPhysics's picture

Take profits, buy physical.  Know your neighborsand seek out like-minded, honest, well-armed individuals.  Then let's see the paper-pushing fuckers try and continue to steal wealth.  That which cannot be sustained, won't be.  

I know of at least two large contract to deliver real commodiites in my area that were defaulted on.  The commodity producer simply said "no deal, take you fiat and fuck off".

In New York  I am long black markets and a totalitarian police state, nothing else.

Sat, 09/29/2012 - 13:43 | 2841718 Insideher Trading
Insideher Trading's picture

New York City is a trail blazer in becoming an Orwellian dystopia.

It's almost as if they can't wait to get there.

Sat, 09/29/2012 - 13:47 | 2841735 Inthemix96
Inthemix96's picture

Lawsof physics,

Remember last month?  Remember New Yorks finest shooting indecriminatley into a crowd of people while the perp calmly walked and took a round and then went down?  Remember that 11 innocent folk got shot by panicking, clueless, fat, obviously under trained police officers?

Police state?

You have precisley the whole sum of fuck all to be woried about mate.  Absolutely, fuck all.

And even if you do, be aware that even people like me are a better shot than NYC's finest.  Ten go down before me, my good man.

What was that saying Eastwood used to say?  Something along the lines of "make me famous"????

Sat, 09/29/2012 - 13:57 | 2841750 PiratePawpaw
PiratePawpaw's picture

Emilio Estaves as Billy the Kid said "I'll make you famous"

Eastwood as Dirty Harry said "go ahead punk. make my day"

My preference is Eastwood in the Spaghetti Westerns. He never said much of anything. He just shot 'em.

Sat, 09/29/2012 - 14:35 | 2841820 dick cheneys ghost
dick cheneys ghost's picture

"Buzzards gotta eat, same as worms"

Sat, 09/29/2012 - 14:43 | 2841836 PiratePawpaw
PiratePawpaw's picture

Outlaw Josey Wales. From same movie, different character. "dont piss down my back and tell me it's rainin"

Sat, 09/29/2012 - 13:52 | 2841741 LetThemEatRand
LetThemEatRand's picture

"They do one of two things: i. they raise the cost of their product/service and pass the cost to the consumer; ii. Layoff employees or outsource the jobs."

Are we the people supposed to care that these blood sucking leeches are threatening to take their tiny balls and go home?  Please don't throw us in the briar patch.  

P.S.  We've been hearing this false mantra that taxes are to blame for driving out productive business since Reagan.  Real corporate taxes (e.g., what they pay, not the fictional rate paraded out by the red team as the supposed source of our ills) are at generational lows.  Productive manufacturing businesses that built the West left a long time ago for slave labor tax haven countries because we were told cheap goods from China would make us all rich and people apparently liked the giant sucking sound they heard.  The rich are getting richer and they don't like to share.

Sat, 09/29/2012 - 14:07 | 2841759 Insideher Trading
Insideher Trading's picture

You parrot how taxes are at generational lows while at the same time ignoring the fact that the United States has the highest corporate tax rate in the world.

You also ignore the fact that public servants are compensated higher than their private sector counterparts. You are probably one of those people that posits that the best way to get out of debt is by borrowing more.

Borrow to prosperity all you'd like.

Sat, 09/29/2012 - 16:09 | 2841993 LetThemEatRand
LetThemEatRand's picture

You parrot the red team bullshit that large U.S. companies are paying high taxes when in fact that opposite is true.  Who cares what the tax rate is when no one actually pays that rate?   Actual tax payments (as opposed to unicorn rates) are at generational lows.  It is a fact whether your ideology will accept it or not.   And no, printing money and giving it to bankers is only good idea if you're a banker.  But go red team.  Good luck with that.

Sat, 09/29/2012 - 16:20 | 2842021 akak
akak's picture

You do, of course, realize that in reality there are effectively no such thing as corporate taxes, or business taxes in general, as ALL taxes are fundamentally and ultimately paid by the individual.  "Business taxes" are just passed along to consumers in the form of higher prices.

Sat, 09/29/2012 - 20:46 | 2842421 WAMO556
WAMO556's picture

I plussed you for common sense reply. If I have a bill (tax) and can get some other muppet (taxpayer) to pay, why not....pure profit. Beat the street is the name of the game. Eatingrand dont know what the hell he be talking bout. Being a REMF gives one a rear area view...women, showers, hot food and a good audience (of newbies) to tell their "war" stories to.

Sat, 09/29/2012 - 19:44 | 2842329 Offthebeach
Offthebeach's picture

So why have inside the US have since before WWll, have industries moved from high tax to low tax states? Why the migration of taxpayers from New Jersey/California to Nevada/Florida, Massachusetts to New Hampshire, and everyone to Texas?

Sat, 09/29/2012 - 18:04 | 2842193 Meesohaawnee
Meesohaawnee's picture

"america will destroy itself from within"Gordon Gekko

Sat, 09/29/2012 - 13:41 | 2841725 miker
miker's picture

The GREAT INFLATION has distorted most everything.  The greater the distortion, the greater the fall.  Before it's over, they won't be able to give away these spaces.

Sat, 09/29/2012 - 13:47 | 2841736 Venerability
Venerability's picture

Tyler,

That could be extremely faulty logic.

Hedgies have been underperforming everybody else in the market - including we Gold-loving peasants for whom they have such disdain - because they play primarily from the Short side.

If it is those who play primarily from the Short side who are "suffering," is that not a Bullish development, not a Bearish one?

And as we also know, much specialty trading, including that in commodities and currencies, continues to move from West to East.

Perhaps a rise in vacancies in New York or London will translate soon into a fall in vacancies in Hong Kong, Singapore, and Tokyo. 

 

Sat, 09/29/2012 - 14:06 | 2841760 q99x2
q99x2's picture

 

Bankster's first,

Move 'em on, head 'em up, 
Head 'em up, move 'em out, 
 

Here comes Bloomberg's office,

Move 'em on, head 'em up, 
Head 'em up, move 'em out, 
 

Next in line the FED,

Move 'em on, head 'em up, 
Head 'em up, move 'em out, 

Rollin rollin rollin.

Keep them doggies movin

 

.

Sat, 09/29/2012 - 14:09 | 2841761 CunnyFunt
CunnyFunt's picture

Meanwhile, the BARCLAYS Arena opened last night in Brooklyn with the assistance of the ESDC, payoffs to Bloomberg and Markowitz, and eminent domain evictions. The scrubs in the outer boroughs need their bread and circuses.

If turds could rust, they would look like this $1.2B joke: http://ny.curbed.com/uploads/barclays-center-signage.jpg

Sat, 09/29/2012 - 14:22 | 2841784 EscapingProgress
EscapingProgress's picture

Nothing to worry about here.  Wells Fargo is all in on this one!

"...Wells Fargo, has thrown caution to the wind and is aggressively writing new business in both residential and commercial real estate loans. ...

In New York City, for example, the backyard of JPMorgan and Citigroup, Wells has become the leading lender to commercial property developers. One of the oldest and most respected players in the New York commercial real estate community tells HousingWire that Wells is writing business that is at least half a point lower in cost than loans available from other banks and with far easier terms. ...

Several participants at the HW conference told me that Wells is literally buying market share by writing loans which are not economic, but then enhance current earnings by booking the estimated value of the “customer relationship” up front in the quarter when the loan is closed. If this type of accounting gimmickry makes you recall the days of the dot.com bubble, then you are on the right page. ...

Many of those commercial property financings that the largest U.S. mortgage lending is putting on its books in the New York market are premised on the idea of rising lease rates in the next few years, but nothing could be further from the case."

Read more: http://www.housingwire.com/news/wells-fargo-doubles-down-housing

Sat, 09/29/2012 - 14:51 | 2841847 JamesBond
JamesBond's picture

lower the rent?

 

problem solved

 

jb

Sat, 09/29/2012 - 15:17 | 2841891 q99x2
q99x2's picture

Bring back the Bowery and CBGBs.

Sat, 09/29/2012 - 23:49 | 2842642 Omen IV
Omen IV's picture

and -Save the Robots - great after hours club lower east side 1980's and  - The Vault - meatpacking district - 1990's best S&M amateur improv in NYC

Sat, 09/29/2012 - 17:39 | 2842146 IMA5U
IMA5U's picture

Good   its my least favorite part of town

 

The Occupy Wall Street crowd can squat in the vacant buildings to further erode property values

Sat, 09/29/2012 - 21:43 | 2842487 jbvtme
jbvtme's picture

fuck new york and all cities.  i'm long tumbleweeds.

Sat, 09/29/2012 - 22:34 | 2842581 AgShaman
AgShaman's picture

If i was an insider, i'd sell all my equities...and use the cash to build a fort, outfitted with some human proof wire fencing.

Hahahaha....those fuckers are panicked weasels trapped in a henhouse most of 'em.

The gubmint...is the keeper of their protectorate...bought and paid for, to keep outta jail, for criminal activity.

It seems crime does have its benefits

Sat, 09/29/2012 - 23:09 | 2842612 ThisIsBob
ThisIsBob's picture

Beyond lunch, what does New York have anyway?

Sat, 09/29/2012 - 23:46 | 2842644 Omen IV
Omen IV's picture

great pretzels

Sun, 09/30/2012 - 00:46 | 2842682 JohnKozac
JohnKozac's picture

I am shocked at how empty all the newly built strip malls are. Maybe a hair salon or pizza place and that's it. The remaining slots are empty. Who the heck is financing these ? Thy must be sucking up some big losses.

Sun, 09/30/2012 - 03:26 | 2842756 Hedge Fund of One
Hedge Fund of One's picture

Deflation at work.

Do NOT follow this link or you will be banned from the site!