esting relocation opportunities.” He says there could be
pent-up demand as tenants wait to make decisions.
Compared to a year earlier, the Q4 ’08 asking rent was
higher—but only because it peaked at $84.81 per square
foot by Q3 before dropping $4.67 in the following quarter.
“A $5 decline in three months is a big drop,” says Joseph
Harbert, COO of C&W’s New York region.
Another big drop was registered in the investment sales
sector. The $19.2 billion in closed sales through the end of
2008 was off 60% from the previous year’s record level of
$47.8 billion. Harbert notes that by some estimates, asset
prices have declined 20% to 30% from their peak in
mid-’07, but adds that the figures are difficult to substanti-
Distressed Assets
Potentially Troubled
Value
$3.4B
$8.6B
Properties
32
236
ate with so few data points of late. Much of the buying activity for properties worth more than $10 million took the
form of assumed debt, henotes.
Colliers ABR says one bright spot in the current office
environment is that the eventual uptick in demand will not
be met by an oversupply, because “new construction projects will be tabled, whether by lack of financing or by virtue
of the fact that developers are unwilling to move ahead in
the current environment.”
However, Robert Alexander, chairman of CB Richard
Ellis’ New York tri-state region, adds that some good news
could be expected from the financial sector, where large
institutions have begun to stabilize their employee bases
and should gradually return to growth mode in the near
future. Also, he notes that boutique financial advisory firms
are poised to grow and therefore increase their space
requirements, possibly snapping up re-priced space,
although perhaps not in the same proportions as the now-fallen financial services giants.
Alexander emphasizes that the current downsizing is
not necessarily indicative of tenants’ space needs down the
road. There will be rollovers on leases of 6. 2 million square
feet in 2013 or 2014, or about 20% of the leased space the
financial industry occupies. That means that planning for
the future will start this year and next.
Wall Street’s ailments have begun to infect the city’s residential market, with apartment prices dipping in Q4 and
the rental vacancy rate anticipated to rise this year. The
result could be a softening of fundamentals in the formerly
ironclad multifamily category.
“Despite the downside risks to the multifamily market, the
local reliance on rental housing is expected to prevent significant revenue declines,” says a report from Marcus &
Millichap Real Estate Investment Services. “Additionally,
vacancy is forecast to remain in check in popular Manhattan
and Brooklyn neighborhoods such as the Upper East Side
and Park Slope, as distressed renters take on roommates
rather than move out of desirable locations.”
Marcus & Millichap expects the local buyer pool for
multifamily properties to change “significantly” this year,
even as transaction velocity remains modest. “Experienced
New York property owners who have waited on the sidelines for the froth in the investment market to dissipate are
poised to re-enter the market.”—Paul Bubny
SAN FRANCISCO
San Francisco County’s unemployment rate was under
4.5% at the beginning of 2008, as it had been for a couple of years. One year later, with the recession in full
bloom, the city’s unemployment stands at 6.6% and is
projected to be flirting with 8% by the end of the year,
according to a recent report compiled for the US
Conference of Mayors.
This explains why the 241-million-square-foot Bay
Area office market experienced some record negative
fundamentals in 2008 after five consecutive years of
positive absorption, vacancy decreases and rental rate
increases, and, according to the 2009 Allen Matkins/
UCLA Anderson Forecast, why things will not get any
better in 2009.
Hampered by 5. 8 million square feet of negative net
absorption—a seven-year high, according to CB Richard
Ellis—the region-wide average office vacancy increased
380 basis points during 2008 to 13.6%, the highest year-end rate since 2004. With sublease space, vacancy jumps
to 16.7%.
The 2009 Allen Matkins/UCLA Anderson Forecast
predicts that the San Francisco office market will dip further through mid-2009 and that “the 2010 office market
will look much like today.”
63rd
Annual
Distressed Assets
Potentially Troubled
Value Properties
$373M 9
$3.3B 148
The local retail market, however, remains tight. Kazuko
Morgan, a retail broker with Cushman & Wakefield, estimates direct vacancy to be in the mid- to high-3% range
with overall vacancy (including sublease space) approximately twice that amount. Street-level lease rates in Union
Square, the city’s premier retail submarket, held steady in
the second half of the year in the range of $400 per
square foot annually, she says. Leasing activity in 2008 was
almost double that of 2007, but she expects demand will
be slower in 2009 and that rents will fall.
“The last quarter of 2008 was very slow; a lot of deals for
new tenants entering the market got pushed back,” she
says. “A few of those will be signed soon, however. Despite
what everyone says, deals are still getting done.”
Ross Portugeis, a retail broker with Colliers
International, says retail leasing activity citywide is very
light currently, with national and regional retailers sitting
on the sidelines, leaving some key corners sitting vacant
longer than one might expect. Retailers’ business is definitely down, and some Financial District restaurants have
stopped serving lunch, he says, “but I haven’t seen a lot of
people closing up shop; sales are way down, but people
aren’t pulling the plug.”
The San Francisco apartment market is expected to
maintain relatively healthy operations in 2009, according
to Marcus & Millichap, thanks to a lack of new construction. Vacancy is expected to increase 30 basis points in 2009
to 4.5%, while asking rents are forecast to advance 3.5% to
$2,002 per month. Effective rents are expected to increase
3.3% to $1,897.—Brian Miller
Review
&
Forecast
