A year after the meltdown: How is New York doing?

A year ago, our financial industry was in crisis with the collapse of Lehman Brothers and AIG. Instability and uncertainty sent tremors through the commercial and investment banking sectors. Preliminary third quarter 2008 economic reports from government sources projected the city would lose 250,000 jobs as a result of the recession and the problems in the financial industry centered in N.Y. These forecasted job losses were comparable to those of the recession of the 1990s which drove office vacancy rates in Manhattan to 18.3%, and as high as 25% lower Manhattan. As a result of the events in Sept. 2008, the commercial real estate market saw a steady and precipitous decline in office asking rents and a commensurate rise in vacancy rates in all the major market areas. According to a recent Colliers ABR report, the Manhattan class A vacancy was 12% in July up from almost 7% in August 2008. Over the same period, average asking rents for this space dropped from $87 to $64 per s/f. Commercial sales also saw a decline in activity. The paralysis in the credit markets led to a virtually complete cessation of large commercial transactions above $500 million, according to one survey of the market. Lower priced transactions (below $50 million) continued to occur, but volume was down and financing was more difficult to obtain. A year after the events of September, how is N.Y. doing? From August 2008 to August 2009, N.Y.C. has lost about 96,000 private sector jobs, lower than projected and with the rate of loss slowing. More recent economic forecasts put city job losses to peak at 120,000. Since Dec. 2007, NYS has lost 0.9% of its total jobs. In comparison, Arizona lost 10.8%; Michigan 10%; Florida 9.9% and California 6.9%. These lower job losses than projected for the city and the lower percentage of jobs lost in the state compared to other major states are positive signs that our recovery could occur faster than other parts of the country. These signs seem to be having a beneficial impact on our commercial office market. The Manhattan class A office market has shown modest improvement in August, compared to the previous month. Vacancy rates have dipped to 11.8% and asking rents edged up to $64.36. The good news in these numbers is not the slight increases but the change in the direction of the market. Another positive development in the credit market for large commercial projects was the $1.28 billion refinancing of the Bank of America Tower by the Durst Org. The refinancing is also noteworthy in that the new loan is $325 million more than the original commitment. There are still reasons to take a cautious approach to this incipient recovery. Month-to-month market indicators can quickly be reversed by the addition of a large block of space at a low rent. Also our unemployment rate continues to rise, the state is forecasting another multibillion dollar deficit, and the federal stimulus package funding expires next year. These factors could stall and even jeopardize a recovery. At a recent A.I. conference, executives at the major brokerage companies warned that the vacancy rate in lower Manhattan could swell to 20% due in part to the meltdown of financial firms that were major space users in the area. The city's economy and the commercial real estate market are in better shape today then anyone would have predicted a year ago. The challenge for the city, state and industry will be to build on the progress we have made. It is our hope that a year from now we are not still talking about a modest recovery, but real, broad-based economic revitalization. Steven Spinola is the president of the Real Estate Board of New York, N.Y.