A predictably unpredictable market.

The Manhattan office market once again got off to a strong start this year - reviving the perpetual hope of the decade that a lasting recovery was really underway. In 1994, there had also been a good start, but it had gradually been aborted by the Federal Reserve's six successive interest rate hikes that began in February. Oddly enough, the Fed's skipping of a feared seventh at the end of the year helped launch the 1995 surge.

That seventh increase did come along, though, in the first quarter, and evidence that the cumulative effect of the increases was indeed slowing the economy became stronger. By May, leasing activity in our interest-sensitive office market seemed to have evaporated. Optimistic pundits, in fact, began citing the bad economic news as cause for the imminent lowering of interest rates by the Fed. Pessimistic pundits claimed the Fed could not do that because of the dollar's international weakness.

June came in with the startling and unexpected news that payroll jobs in May had declined by 101,000 (the biggest loss in any month since April 1991). The initial shock at the size of the drop unleashed an outburst of speculation that Fed policies, instead of guiding the economy toward a soft landing, were now pushing it into a recession that should be forestalled by a prompt cut in interest rates.

Twice in the following days, Fed Chairman Alan Greenspan, in public statements, indicated the economy's long-term health made any imminent cuts unnecessary. While the current sluggishness of the economy might lead to "a modest adjustment - whether you call it a recession or not," he said, the likelihood of a deeper lengthy recession lasting into 1996 and beyond had "decreased very significantly."

As continuing reports show that the slow-down is deepening, however, while inflation remains under control, the persistent belief that the Fed will ultimately have to cut interest rates - sooner, rather than later - is winning acceptance with each new set of figures.

Modest Adjustment? Interest Cuts? Recession?

Where is our office market going in the second half of 1995? Any answer is obviously a guess. There are too many uncertainties and complexities. If the Fed raises interest rates, it will help the dollar on the international exchanges and counter inflation, but hurt the economy. If rates are lowered, it will stir economic growth, encourage inflation and harm the dollar.

At the beginning of the year, when the surge of leasing activity that begin in 1994 seemed to be strengthening, many real estate people thought it was the lasting turnaround that we had been waiting for since the 1987 stock crash. In the four months or so it lasted, it was a very strong market.

In The Lincoln Building, it brought us up to the 90 percent occupancy range. Our April renewal season, which was very heavy, was extremely successful. We either renewed or re-leased 90 percent of the space that became available. Then the market collapsed, and things have been very slow ever since. Now, in a "predictably unpredictable market," we are moving into what has traditionally been the slowest time of the year.

Creativity, Creativity, Creativity

Creativity will be essential, not only in successfully getting through the present situation, but, more importantly, in dealing with changes that are, and will be, taking place in the very nature of the product tenants will be expecting us to offer. From the 1987 stock market crash to just about a year ago, New York lost about 390,000 jobs. Today, only about 90,000 of those have been recovered. That means that 300,000 desk or other work spaces are no longer required.

Computers, fax machines, e-mail and other technological advances are also making it possible for small space users to work at home, in some cases eliminating space in tho city; in others, reducing the time they spend and the space they need here. Substantial savings are involved for the self-employed, and for companies as well, when an arrangement has been made with an employee.

In earlier years at The Lincoln Building, larger out-of-town companies considered a prominent day-to-day Midtown Manhattan presence essential to their business. Now modern technology can supply that presence from almost anywhere. Most corporations that leave the city, however, find that they still must maintain an office or hotel suite here for the frequent occasions when more than an electronic presence is necessary.

Because of the overall uncertainty of the economy, small tenants - which is what we specialize in at The Lincoln Building - are struggling just-to survive. There's no time for them to think about expansion or hiring new personnel, which are the integral activities in the building that keep our occupancy rate high. The savings of a shift from office to home can seem very attractive in this situation.

We have to market our space to serve and compete with new ways of doing business and be sensitive to what our tenants want. Just recently, we discovered that many tenants would like to have television in their offices and we expect to have it supplied shortly. We have also expanded The Lincoln Law Library - always a particular attraction for the many accountants and lawyers in the building - by a third. Seating capacity has been added along with shelf-space for the ever-increasing books, journals and other publications that help them in their professions.

It is essential that real estate professionals capitalize on the opportunities offered by the changes in the ways of doing business now taking place. We need to develop the products and services that expand and serve them. Our industry must not become frozen in outdated standards and practices. Our creativity must be freed to make the industry a vital part of the challenging and stimulating future.

Doing whatever we can do now will help to prepare us for that lasting recovery when it finally does arrive.