Continued strength seen in Manhattan office market.

According to a report issued by Grubb & Ellis, the urge to merge that has swept through Corporate America with a series of recent mergers and consolidations has already made an impact on Manhattan's real estate market.

Just as expansion and globalization efforts fueled real estate growth in 1997 and 1998, internal company restructurings will drive real estate trends in 1999.

"Several New York-based businesses are reconsidering their current real estate holdings and sublet space is beginning to appear on the market," explained Grubb & Ellis New York President Ray O'Keefe. More than 500,000 square feet of Class A sublet space was brought to the market in Manhattan during the first quarter.

"Despite this sublet space, several positive signs remain in Manhattan's office market," continued O'Keefe. "The emergence of many high-tech companies has dramatically impacted existing real estate and has changed the landscape of the Manhattan office market. The market has filtered into what was traditionally considered manufacturing districts and residential neighborhoods in Midtown West and Midtown South."

Renovated industrial space in these areas has attracted numerous specialized businesses in the advertising, publishing, multimedia, entertainment and software development industries. The emergence of new industries has expanded the playing field to include buildings on the far West Side and the Hudson square/Tribeca and SoHo/NoHo submarkets.

Although large deals such as Credit Agricole's 127,000 square-foot deal at 666 Third Avenue and Double Click's 150,477 square-foot lease at 450 West 33rd Street captured headlines, small deals are fueling market growth. Over 70 percent of all deals completed during the first quarter were 10,000 square feet or less. A key ingredient to the extension of this trend will be the success of many small businesses and emerging industries.

The entertainment and media industries have emerged as key components of the City's economic engine, and the Downtown Information Technology District, which extends south of Chambers Street to the tip of Manhattan, is becoming home to hundreds of information technology companies. These firms are quickly emerging as pioneers in revitalizing Downtown. However, the financial services industry is still the dominant player in the Downtown office market. During the first quarter, financial services firms accounted for 18 percent of all completed deals.

In the new era of e-commerce, Manhattan will evolve into a hub for financial information and electronic communication, O'Keefe said. The continued efforts of many landlords to reinvent tired buildings will bring space to market throughout 1999 and thus present opportunities to emerging high-tech and media firms.

Development opportunities will also capture headlines in 1999, as they did in 1998. The Port Authority is close to naming a finalist for its office tower development over the bus terminal, and Boston Properties is rumored to have secured a lead tenant for one of its two sites in Times square.

Opportunities exist in today's market, and as transaction volume escalates, the slowdown sparked by the credit crunch of late 1998 will become a distant memory, O'Keefe predicted.