There's a problem with the financial services sector in New York City, according to the top managers of office REITs that own and manage commercial space there. The presentations and discussions at the National Association of Real Estate Investment Trusts indicated that the sector has stalled over the past year, which is keeping rents flat and vacancy rates a tad above what REIT executives would like to see.

Big banks to blame, again
While CEOs and presidents of big office REITs such as Boston Properties (NYSE: BXP), Vornado Realty Trust (NYSE: VNO), and SL Green Realty (NYSE: SLG) are not sounding alarm bells, they did note that office rentals are treading water because of the sluggishness of the financial services industry, mainly in the banking sector. Brookfield Properties (NYSE: BPO), for example, will see 3 million square feet of space, currently leased to Bank of America (NYSE: BAC) and other financial firms, become vacant before the end of next year.  

Companies in the financial sector, which generally rent out about one-third of all office space in the city of New York, occupied a mere 25% of that space in the first quarter of this year. Because of this contraction, REIT executives forecast occupancy rates to hover around 9%, rather than the 6% or 7% enjoyed during better times. While the lack of progress is frustrating, managers point out that there hasn't been a mass exodus, just an overall lack of growth.

REITS busily keeping to the business of buying and selling
On other fronts, Vornado has announced that it may sell more than $1 billion of its assets before the end of the year, as it streamlines its business in response to a stagnant stock price. In Boston, Bank of America sold a property on Federal Street to Boston Properties several weeks ago, then promptly rented back almost 800,000 square feet.

As for the property being vacated by B of A in New York, Brookfield is negotiating with two other tenants who are expected to take over approximately half the space. Meanwhile, Brookfield is taking advantage of the robust office rental market in Canada, as it develops the nearly 1-million-square-foot Bay Adelaide Centre East building in downtown Toronto. Its West tower, which opened in 2009, currently has a 95% occupancy rate.

Fool's take
These four REITs seem to be holding their own, though Vornado has been a bit sloggy in the performance department. Management is taking steps to rectify that by divesting some non-core properties, so the company bears watching this year to see how the new plan plays out.

On the other hand, SL Green has been experiencing a boost this year, showing some revenue increases and partnering with private real estate company Wharton Properties to develop retail space in Times Square. There will undoubtedly be a few more bumps before the economy as a whole and financials in particular recover completely, but when that happens, I'll bet these companies will be ready.

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