Banks vacate towers

Bloomberg

New York’s biggest banks and securities firms may relinquish 8 million square feet of office space this year, deepening the worst commercial property slump in more than a decade as they abandon a record amount of property.

JPMorgan Chase, Citigroup, bankrupt Lehman Brothers Holdings and industry rivals have vacated 4.6 million feet, a figure that may climb by another 4 million as businesses leave or sublet space they no longer need, according CB Richard Ellis Group, the largest commercial property broker.

Banks, brokers and insurers have fired more than 177,000 employees in the Americas as the recession and credit crisis battered balance sheets. Financial services firms occupy about a quarter of Manhattan’s 362 million square feet of office space and account for almost 40 percent now available for sublease, CB Richard Ellis data show.

"Entire segments of the industry are gone," said Marisa Di Natale, a senior economist at Moody’s Economy.com. "We’re talking about the end of 2012 before things actually start to turn up again for the New York office market."

The amount of available space may reach 15.6 percent by the end of the year, the most since 1996, according to Los Angeles-based CB Richard Ellis. Vacancies are already the highest since 2004 and rents are down 5 percent, the biggest drop in at least two decades.

In 2003, the city had 14.8 million square feet available for sublease. If financial firms give up as much as CB Richard Ellis expects, that record will be broken.

Merrill as wild card

CB Richard Ellis’s figures don’t include any space Bank of America may relinquish at the World Financial Center in lower Manhattan, where Merrill Lynch, the securities firm it acquired last month, occupies 2.8 million square feet. Brookfield Properties, the second-biggest owner of U.S. office buildings by square footage, owns the Financial Center.

Merrill "is a wild card right now," said Robert Stella, principal at Boston-based real estate brokerage CresaPartners.

Commercial real estate prices dropped almost 15 percent last year, more than U.S. house prices, Moody’s Investors Service said in a Feb. 19 report. The decline returned values to 2005 levels, according to the Moody’s/REAL Commercial Property Price Indexes. The Bloomberg Office REIT Index fell 25 percent since the start of January, with SL Green Realty, the biggest owner of Manhattan skyscrapers, slumping 50 percent. Vornado Realty Trust, whose buildings include One and Two Penn Plaza in Midtown, has fallen 36 percent. SL Green of New York gets 41 percent of its revenue from financial firms, including 13 percent from Citigroup, according to its Web site.

Bank of America plans to give up 530,000 square feet at 9 West 57th St. as it completes a move to 1 Bryant Park. New York-based Goldman Sachs Group is leaving 1.3 million square feet of offices at 1 New York Plaza and 77 Water St. as it prepares to move to new headquarters near the World Trade Center site.

JPMorgan put 320,000 square feet of Park Avenue offices on the market after scooping up rival Bear Stearns last year along with the company’s 45-story headquarters tower at 383 Madison Ave.

Citigroup has put 11 floors, or 326,000 square feet, on the market at the 59-story Citigroup Center at Lexington Avenue and 53rd Street, bank spokesman Jon Diat said in an e-mail. The tower is owned by Mortimer Zuckerman’s Boston Properties.

"We’ve been having conversations for two and a half years with Citigroup, and it’s been very clear to us that for the right economic transaction, they would move out of virtually any space in midtown Manhattan that they have," Boston Properties President Douglas Linde said on a conference call last month.