Excess space, high hopes in office market.

The basic situation in Manhattan office leasing hasn't changed very much from January to June. A huge oversupply of vacant space built in the late 80s hangs over what has become a strong tenant's market. There's a lot of leasing activity, and considerable space is being rented, but it's not making much of an inroad in the large amount of space still vacant.

For one thing, most of the leases are by tenants who have vacated space in one Manhattan building and rented space in another. The market vacancy (or occupancy) total remains unchanged if the new footage is the same as the old; if it's less, market vacancies increase (occupancies go down). Only when the footage is increased because the new space is an expansion - perhaps not the most likely alternative in this economy - will there be any reduction of the surplus of available space. Not much excess space is being absorbed, either, by the very limited numbers of out-of-town companies that are now setting up new branches or operations in Manhattan or by the even fewer new businesses establishing their first offices here.

Less Gloom in June

The good news is that there was probably more gloom about the economy in January than there us in June. An accumulation of actions by the Federal Reserve to lower interest rates and favorable economic reports in recent weeks has inspired a growing belief that an economic recovery has begun. While recalling the enthusiasms of spring a year ago can prompt an uneasy thought that the current enthusiasm is just another case of Yogi Berra's" deja vu all over again," hopes are high that the economy is really recovering after all this time and that it will be strong enough to generate some robust upward momentum in the Manhattan office market. We have the office space to support very extensive economic growth.

Meanwhile we are in a market that might be called frenzied if getting things done in it were not taking so much time. Sometimes we seem to be operating in slow motion. Negotiations are taking longer and so - is getting a lease signed, even after everything seemed to be settled. There's also some very aggressive dealing.

Where a company is considering relocation, there is often a silent, unseen presence at negotiations - it current landlord. the company may have a general reluctance to take on the difficulties of relocation, and make use of the potential "new" landlord's best offer to wring the same concessions from the one it hoped to keep all along. At the eleventh hour, the old landlord knuckles under and matches the deal. In other cases, landlords may be determined to make every effort to keep a large, well-rated, credit-worthy corporate tenant.

Still A Lot of Uncertainly

Perhaps there would less of whatever frenzy there is in the market if there was not still a lot uncertainly hovering over it. In the Northeast, we still haven't really gotten out of the recession. The ramifications of the Olympia and York situation must still be dealt with. What effect will it have on the real estate community's relationships with commercial lenders and bankers? What effect on the leasing market? Is there really going to be a recovery? One that lasts beyond the elections?

Whatever the answers, we all know that New York City will come back-as it always has.