Manhattan property datapoint of the day

By Felix Salmon
June 29, 2009

Ilaina Jonas reports on commercial property in Manhattan:

During the second quarter an additional 4.7 million square feet of office space was put on the market, surpassing the 3.9 million square feet that hit the market in the first quarter.

The really scary thing is that this is presented as good news, due to the positive second derivative:

The increase slowed significantly in the latter half of the quarter, according to the report released to Reuters on Sunday.

That could help major Manhattan landlords such as SL Green Realty Corp, Vornado Realty Trust, Boston Properties Inc and Brookfield Properties.

I don’t see how landlords care much about the second derivative. They care about supply and demand, and there’s likely to be an enormous amount of unlet office space in Manhattan for the foreseeable future, giving them little if any pricing power. Commercial rents are going to fall, not rise — and all those toxic commercial mortgages are going to start defaulting en masse Real Soon Now.

Is the banking system ready for that hit? No: the idea behind the PPIP was that banks could get some of that toxic waste off their books. But the PPIP failed to get off the ground, and now the banks are left to face the nasty consequences on their own. It won’t be pretty.

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The second derivative of the rate of new supply is favorable. That presumably correlates more-or-less with the third derivative of continuing overhang, depending on how good a job it’s doing of coming off the market.