Job decline on Wall Street is expected to continue according to a New York state report released last week.
The New York state comptroller released its report forecasting additional contraction on Wall Street through the end of 2012, citing weaker trading volumes (including proprietary), a slowing U.S. economy, and the impact of the regulatory environment as drivers.
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Profits in the securities industry are projected to grow in 2012, but employment and the cash bonus pool in New York City are expected to decline, according to an analysis released by New York State Comptroller Thomas P. DiNapoli.
"The securities industry remains in transition and volatility in profits and employment show that we have not yet reached the new normal," DiNapoli said. "The securities industry is still grappling with the fallout from the financial crisis, new regulations and slow economic recovery. How the industry negotiates this continued uncertainty could impact profitability and the finances of New York City and New York State."
The comptroller estimates that for each new job created or lost in the securities industry, two additional jobs are created (or lost) in other industries in New York City and one additional (or fewer) job in the rest of the state, primarily in the suburbs.
DiNapoli estimates that the securities industry in New York City lost 28,100 jobs during the financial crisis and has added 7,900 jobs during the recovery, for a net loss of 20,200 jobs since November 2007.
Bad News for REITs
That job contraction could negatively affect New York City-focused office real estate investment trusts (REITs), according Fitch Ratings.
Financial services job growth has long been a key driver for New York City office fundamentals, with a lagging impact on related industries' space requirements, including accounting and law firms. New York City office fundamentals have improved materially but reflect financial services' contraction, with persistently high tenant improvements and leasing commissions required on transactions, according to Fitch analysis.
"The uncertainty in downsizing has clearly been reflected in those fundamentals, which we have incorporated into the ratings of New York City-focused REITs SL Green Realty Corp. ('BB+') and Boston Properties Inc. ('BBB'). While we have a Stable Rating Outlook for both companies, their longer term earnings power is still affected by the vibrancy of Wall Street employment," Fitch reported.
For SL Green, 46% of base rental revenues come from financial services and legal tenants.
"We believe a reduction in financial services employment likely would negatively affect the performance of the company's portfolio, particularly upon lease expirations," Fitch reported. "While the company is subject to significant industry exposure, the concern is somewhat mitigated in the near term by the manageable lease expiration schedule and the fact that the company's largest financial industry tenants, Citigroup and Credit Suisse, are both rated 'A'."
For Boston Properties, 54% of gross rent is derived from financial services and legal tenants.
Boston Properties "would also come under increased pressure if financial tenants continue to reduce their space footprints and remain reluctant to expand," Fitch reported. "Law firms are also reducing footprints, but unlike financial firms, they are signing large leases at prime locations, underscored by recent activity at the company's development at 250 W. 55th street in Midtown Manhattan."
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