CBD building owners face challenges, opportunities.

These are truly, dynamic times for the commercial real estate industry. In fact, this is the most hospitable environment for real estate that I can remember in 30 years or more. As the real estate industry continues to recover from its downturn, a trend toward a landlord's market is emerging in many major cities around the country, bringing building owners considerable opportunities.

However, there are also significant challenges confronting owners in the real estate market today. The deregulation of electric utilities, for example, will be one area where major changes are sure to sweep through the industry like wildfire.

The dawning of a new and advanced technological era poses additional obstacles that many owners need to address, especially in older buildings lacking the appropriate technological upgrades. Technological infrastructure - or the lack of it in many buildings - has become one of the top reasons why tenants choose to relocate. Not only do tenants require basic capabilities to handle their computer, voice, data and communications systems, but also the backup power sources and services to ensure proper system management.

Related to this technology factor is the issue of the obsolescence of a growing number of office buildings, especially in Downtown Manhattan. There are many variables that can make a building obsolete technological shortcomings, of course, being one. But in many cases, these can be cured through retrofits and upgrades.

However, other shortcomings cannot be so easily addressed, such as inadequate floorplates. Since half of the available space in Downtown is on floors with less than 20,000 square feet, larger tenants in need of more floor space shy away from these properties. Rather than leaving these buildings perpetually empty, some developers have begun to convert them into residential properties. Indeed, the residential conversion phenomenon is the linchpin in the successful revival of the Downtown office market, which is being transformed into a true live/work/play community.

Two examples of recent office-to-residential conversions are 25 Broad Street and 45 Wall Street, where in total, more than 932,000 square feet of vacant commercial space was removed from the overall inventory. With several more buildings slated for conversion in 1997, the Downtown office market should experience a considerable easing in its overall availability rate, now at 23 percent - the highest in Manhattan.

As for the future of major cities like Manhattan, the technology revolution will make for an increasingly decentralized, mobile and even "work-from-home" labor force. But, the spread of technology has placed a premium on intellectual capital, which has always been an abundant natural resource in Manhattan. Proximity still matters. Businesses need to be located where they have access to the greatest resources. Companies that are driven by brainpower thrive on the interchange of ideas, on professional and social interaction that stimulate original thinking and creative new ideas.

While there are many challenges that face today's building owners, there are also many opportunities that can arise from the conquering of these challenges. The future of the real estate market is encouraging, as long as the obstacles are properly overcome.