by Calculated Risk on 1/27/2009 05:23:00 PM

From Bloomberg: New York Office Vacancies Rising to 12% by 2011, SL Green Says

Manhattan office vacancies may rise to 12 percent within 24 months, SL Green Realty Corp. Chief Executive Officer Marc Holliday said today on a conference call.

SL Green, New York’s biggest office landlord with 23.2 million square feet ...

From the SL Green conference call (hat tip Brian):

“Clearly this is a market where we are relooking at the ways we lease and do business with tenants. We are more cautious today. We have increased our security deposit requirements for tenants that are less than obviously credit worthy and this is something that we have done in other bad markets. It's paid off for us. It's kept our credit losses to a minimum in good and bad market. We are also doing more net effective deals where we put out less capital and pay less commission on slightly lower rents but rents that still provide for uptick relative to prior escalated rents.

The market however is certainly feeling the pressure of job losses, Financial Services contraction, sublet space and a limited but growing number of business failures. We can't help but expect that vacancy rate in midtown is going to rise beyond where we had originally forecasted those vacancy rates to be at around ten to 12%. At the moment those rates seem to be at around eight to 9% vacant currently, maybe even 10% if you take into account whatever space we think will be coming available directly or indirectly online in 2009. And we think that that vacancy rate could easily now hit 12% or more over the next 24 months.
emphasis added

Mayor Bloomberg released a report on the NY City economy in early November. Here is a graph of their projected vacancy rate and rents (close to the SL Green projections):

Click on graph for larger image in new window.

This graph shows the actual and projected (by the NYC OMB) rents and office vacancy rate for NYC Class A buildings.

The vacancy rate is expected to rise from about 7.5% to 13%, and rents are expect to decline by 20% or more from the peak.