NEW YORK, Dec 23 (Reuters) - The Manhattan office vacancy rate hit a two-year high as financial services companies and law firms dumped space back onto the market, according to a report released on Tuesday by a real estate services firm.
The overall vacancy rate rose to 10.9 percent in the fourth quarter, the highest level in two years and more than three percentage points greater than a year ago, according to the report released by FirstService Williams.
Space available directly from a landlord registered an 8.1 percent vacancy rate in the fourth quarter, while sublease space weighed in at 2.8 percent — the highest rate in more than three years.
Almost 2.4 million square feet of sublease space entered the market over the last three months, larger than the quarterly increase of 1.8 million square feet in directly available space.
“With leasing activity languishing and tenant space choices growing exponentially, it is not surprising that the overall asking rent for Manhattan dropped by 4 percent from the previous quarter,” Mark Jaccom, FirstService Williams chief executive, said in a statement.
The increased availability of space helped drive down asking rent — rent before concessions — by 2.7 percent to $74.49 per square foot from a year earlier.
Law firms and financial services companies had been the greatest driver of space demand over the past few years fueling record-high rents.
But financial services firms, including Citigroup Inc (C.N), Credit Suisse Group AG CSGN.VX, Credit Lyonnais, Alliance Bernstein, UBS AG UBSN.VX , MetLife Inc (MET.N), Bear Stearns, and National Financial Partners Corp NFP.N, placed almost 1.2 million square feet of sublease space on the market in the fourth quarter.
Legal services firms such as Reed Elsevier (REL.L); Cadwalader, Wickersham & Taft; and Thacher, Proffitt & Wood contributed 230,000 square feet of sublease space. Other law firms, including Orrick, Herrington & Sutcliffe and Thelen Reid Brown vacated almost 450,000 square feet of direct space. (Reporting by Ilaina Jonas; Editing by Tim Dobbyn)