Industry braces for impact of layoffs.

Layoffs continue to thin the financial services sector, adding another gloomy footnote to this bearish fall. Last week, both JP Morgan Chase and Credit Suisse First Boston announced major staff cuts, the latter trimming 5 to 7% of the firm's 25,000 workers. CSFB has already fired about 5,000 people this year alone.

The real estate implications of protracted financial services layoffs are dire, since these firms lease 20% of Manhattan office space according to Insignia/ESG. Less than 9% of this space is sublease. If these layoffs proceed through the fall, it's likely that even more sublease space will come online.

Despite the dark economic news, Cushman & Wakefield predicts that the real estate market is showing signs of stabilizing. The firm was far from exuberant about the future, however.

"It remains to be seen whether this is an indication that office markets are on the verge of a sustainable recovery or simply experiencing a lull prior to further layoff an nouncements in the fourth quarter," read part of Cushman & Wakefield's research report.

In the face of continued layoffs and a possible Gulf War, New York City's commercial real estate market stands to suffer even more. Many people are now wondering if it might just get worse before it gets better.

Few economic indicators offer any reasons to be optimistic. Third quarter earnings--which were trickling in as of last week--were mainly down.

Financial services firms may be re-evaluating their real estate holdings, but one broker doesn't see them parceling off sublease space in vast quantities.

"The reason why is two-fold. One, these layoffs are not dissolving entire departments that occupy the same space. They are widespread, making it harder to shuffle people around and sublease portions of the space," said David Rosenbloom.

The second reason, in his view, is to avoid the added burden of putting sublease space on the market.

"These public firms don't necessarily want to take the write-off if they sublease space. They are already down in revenues. So they'll warehouse the space for later use, once the market comes back and they need it again," he said.

President Bush's speech on Iraq did not send the market into a swan dive the following day though the Bear Market shows little sign of abating.

The Dow Jones Industrial Average closed at 7,353 last Monday, its weakest closing since mid-year 1997.

The only bright spot in the market is building sales. Investors who got burned by equity losses are eagerly putting their money into commercial real estate, as shown by the hot sales market here in Manhattan. Most of the buildings selling for top dollar also happen to have very low vacancy. If leasing continues to wane, the value of many office properties may be in greater doubt.