As leasing goes, sales will follow.

0009

As leasing goes, sales will follow. That sentence sums up the commercial real estate sales market in Manhattan. In 1992, leasing increased to 19 million square feet from 16 million in 1991, on the strength of healthy demand in Midtown. This should mean that the sales market in Midtown will pick up in 1993.

The sales market will also be helped by a certain amount of pent up demand: over the last three years, little or no investment activity has occurred on the part of REITs, pension f|nds and wealthy individuals. Many of these groups are determined to increase their investment allocations this year.

But where will the opportunities come from? Foreclosures, Chapter 11 proceedings and deeds in lieu of foreclosure increased at least two fold in 1992, and are expected to continue to increase in 1993. Although this will result in some quality investment grade opportunities, buyers will need to move quickly, because of pent up demand.

It is likely we will continue to see user/buyer activity in the Midtown market in 1993, a phenomenon that occurred in 1992. Thirteen sales transactions were completed last year in midtown, and only five were investment driven.

User/buyer activity has historically made up a small percentage of purchases in New York. The marked increase in 1992 was due to a number of factors: extremely low prices per square foot; expectations for substantial real estate tax abatements; ICIP tax credits; confidence that the leasing market had hit bottom and low financing costs. Unlike investor buyers for whom financing is still rare, user/buyers can use their credit and tenancy to locate financing with relative ease.

Interest from foreign investors remained extremely high in 1992. Individuals from Germany, Italy and Hong Kong were seriously involved with the market, although a lack of quality product reduced the number of actual closed transactions.

In the downtown market, prices played a major role in the increased investor activity. The investor purchases ranged from as low as $18 per square foot to as high as $50 per square foot. It is likely that activity will be high again in 1993, with Hong Kong and Chinese investors joining the local players in taking advantage of a down market.

In 1993, Cushman & Wakefield expects the following: In Midtown, a continued lack of quality product will result in increasing frustration on the part of investors, and the user/buyer activity will continue. In downtown, we foresee a great deal of product on the market, with ongoing demand and very low prices per square foot.

In Downtown, the buildings coming to market will be larger, and the selling institutions stronger, so a gap may emerge between buyers' expectations and the institutions' need to sell.

In both markets, 1993 will be a pivotal year, and the strength of their leasing markets will determine the outcome.

As leasing goes, sales will follow. Now, if only financing were to come back into vogue.