Insignia/ESG's Tighe says subleasing surge is good for all.

Despite millions of feet of office space being returned to Manhattan's major markets, the New York City real estate market is not in danger of collapsing.

"The space coming back to the market is needed," said Mary Ann Tighe, vice chairman of Insignia/ESG. "Subleases are just what the doctor ordered for the market."

During her speech at Insignia/ESG's Market Forecast Breakfast, Tighe said Manhattan's major markets -- Midtown, Midtown South and Downtown -- saw negative absorption during the first quarter of 2001. In Midtown, 2.12 million SF of space was returned to the market, 1.17 million SF came back on the market in Midtown South and 720,000 SF in Downtown.

This caused vacancy rates to inch up in each area, with Midtown rising to 5 percent, Midtown South to 7.3 percent and Downtown to 5.1 percent. However, the increased rates are far below 9 percent -- the rate at which most real estate experts consider the market to be in equilibrium, Tighe said.

"While leasing activity does not compare to last year's record performance, conditions are similar to the pace set in 1999, a strong year for Midtown," states Insignia/ESG's market review for Midtown.

Tighe gave several explanations for the market's "soft landing," including the lack of new office construction. In the 1980s, the supply of office space was increased by 20 percent, but in the 1990s, it was only increased by 2 percent.

Among the major transactions for the quarter were Bank of America Securities' 200,800 SF lease at 9 West 57th Street in Midtown, Credit Suisse First Boston's 1.26 million SF net lease at One Madison Avenue in the Flatiron District and Lehman Brothers' 510,000 SF lease at One World Financial Center in Downtown.

In addition to studying market conditions during the first quarter, Insignia/ESG's research team studied future conditions to determine whether New York City's real estate industry could continue to weather the slowed activity. The team measured the potential im pact of failed dot-coms returning space to the market and of layoffs that could come as a result of a faltering economy, Tighe.

"We could not conjure any scenario where the New York City market would suffer," she said.

Alan Rogers, chairman and chief executive officer of Douglas Elliman, was equally bullish about the city's residential market. Although activity has slowed, low inventory and low interest rates have helped the market to remain solid, he said.

In comparing today's market with that of the late 1980s, he said there were several important differences that are helping to bolster today's economic climate. In the late 1980s, there was excess supply in the residential market, the savings and loan crisis negatively impacted the economy, and New York City was not as desirable a place to live, Rogers said.

"I don't see any major decrease in prices, but there will be some softening especially in non-prime areas," he said.