Leasing down vs. last year.

"Year-to-date leasing activity in the New York City commercial real estate market has calmed noticeably, with a total of 6,867,200 square feet leased in all buildings," observed Mike Solomon, vice chairman in the Midtown New York office of Julien J. Studley, Inc. This total represents a 72 percent decline in activity from 1994's energetic pace during the same period.

"Over the past six months, however, leasing activity has climbed steadily," Solomon noted. The 3,761,503 square feet leased during May/June represents an 18 percent increase over activity from the previous two months, and a 47 percent increase over January/February; however, it is also 22 percent below May/June leasing activity in 1994.

"Despite the slowdown in leasing activity, the mood in the New York City marketplace is upbeat," Solomon said.

Investment sales have been encouraging, as evidenced by recent activity from several foreign investors, including the German-based Paramount Group's purchase of 32 Old Slip in Lower Manhattan, and a Russian investment group's buying spree of four properties in Downtown New York. "There were three user purchases consummated during May/June, involving the two condo purchases at 633 Third Avenue by the United Nations Development Corp. and the New York State Urban Development Corporation, and Century 21 Dept. Store's acquisition of 325 Hudson Street. Additionally, the Quantum Realty Fund has acquired 286,290 and 292 Madison Avenue.

According to Solomon, Prodigy Services Company's plans to relocate to Lower Manhattan from Westchester County will validate this area's emergence as the epicenter for information technology, including on-line production, multi-media and software companies. "Furthermore, this move will stimulate an infrastructure of technology support firms and other related businesses, impacting leasing activity in both the Downtown and Midtown submarkets. In fact, it is plausible that these aforementioned industries will provide a well of opportunity to drive the market into the 21st century," he concludes.

Midtown New York

"Leasing activity in Midtown Manhattan totaled 3,165,662 square feet, representing a 15 percent increase from the previous two months," observed Mitch Steir, executive vice president in Studley's Midtown New York office. However, this total represents a 17 percent decline from May/June '94. "Although activity has been increasing steadily over the past six months, leasing levels in 1995 are not expected to meet 1994's stellar performance," he said. Steir noted that as the market settles, focus has turned to several proposed development projects which have generated some speculation that a new construction cycle is on the horizon.

"For instance, HRO International is marketing its project at 383 Madison as the fanciest high-tech tower to be built in Midtown, based on HRO's ability to lure pre-leasing commitments from financial service companies," Steir said. Conversely, in a move that deviates from the pre-leased development trend, the Durst Organization has announced plans for a speculative construction project at 42nd Street and Avenue of the Americas. This New York City development family is considering refinancing its existing buildings to raise equity for the proposed project.

And, in the city's continuing effort to revitalize 42nd Street, the Disney Development Company was selected to build a hotel, entertainment and retail complex at Eighth Avenue. "The addition of Disney to the West Side marketplace would be a tremendous boost to the growing corporate interest in this submarket," Steir said.

Looking at Class A leasing activity, Steir notes that during the May/June reporting period a total of 413,989 square feet of Class A space was leased. "This represents a significant 75 percent decrease in activity as compared to last year," Steir observed. "However, this represents 46 percent of the total Class B space leased over the past six months. This uptick can be attributed to several major transactions consummated at 633 Third Avenue, including 314,395 square feet by the United Nations Development Corporation and 157,242 square feet taken by the New York Urban Development Corporation. Furthermore, a number of tenants have relocated to Class B space in Midtown South."

Midtown South

During the past two months, the usually quiet Midtown South submarket has experienced a sudden burst of activity. In fact, during May/June a total of 1,213,256 square feet was leased, representing a 100 percent increase from the previous two months and an extraordinary 130 percent increase in activity from May/June 1994.

According to Solomon, this rise in activity can be attributed in part to a number of growing publishing firms, including Scholastic, which has continued its expansion plans by leasing a total of 127,900 square feet of office space in two separate transactions (74,400 square feet at 524 Broadway and 53,500 square feet at 568 Broadway), and 49,564 square feet leased by Prentice Hall Publishing at 375 Hudson Street.

In the Soho area, multi-media and on-line production companies have found new uses for artisan loft space typically found in this submarket. Even though many of these small companies are not competing for big blocks of prime space, it is likely that major users will begin to take an interest in the Midtown South and Midtown markets in a quest to be near the diverse talent pool of graphic designers, analysts, programmers, etc.

Major lease and sale transactions in Midtown New York during the May/June reporting period include: United Nations Development Corporation (User Purchase) 314,395 square feet at 633 Third Avenue; Century 21 Department Store (User Purchase) 190,242 square feet at 325 Hudson Street; New York State Urban Development Corp. (User Purchase) 157,460 square feet at 633 Third Avenue; Towers Perrin, 77,250 square feet at 335 Madison Avenue; Audrey Cohen College, 76,954 square feet at 75 Varick Street; Delphi Interact Services, 74,424 square feet at 620 Ave. of the Americas; Scholastic, Inc., 74,400 square feet at 524 Broadway; Thompson Financial, 65,828 square feet at 395 Hudson Street; Scholastic, Inc., 53,500 square feet at 568 Broadway; and Consulate of Japan, 50,000 square feet at 299 Park Avenue.

Downtown New York

"Activity in the Downtown New York office market was brisk, with a total of 595,841 square feet leased over the past two months, representing the greatest two month surge in activity to date," reported George Martin, executive vice president in Studley's Downtown New York office.

Historically, the May/June is the most active reporting period in the Lower Manhattan marketplace. "However, despite this uptick, the 917,784 square feet leased to date is approximately 64 percent lower than activity which occurred during the first six months of 1994," he continued.

Martin noted that Class A leasing activity slowed during this reporting period, totaling 205,889 square feet of space, representing a 67 percent decline in Class A activity from May/June 1994. "This slowdown can be attributed to the diminishing supply of available quality product," he said. Overall, the vacancy rate for Class A space continues to dip closer to the single digits, currently resting at 12 percent.

Martin also pointed out that, for the first time in recent months, leasing activity in Class B product slightly outpaced Class A activity. A total of 243,389 square feet was leased, representing a 15 percent increase over Class A activity during May/June.

"Given the fact that supply and demand are the two key elements for bolstering the Downtown marketplace, it is plausible that the rollover of long-term, above-market leases in the Midtown marketplace could be a significant factor in driving tenants to Lower Manhattan's favorable lease economics," Martin suggested. For instance, Clifford Chance, a corporate law firm, relocated to One New York Plaza from Midtown, while numerous other companies have made inquiries and inspections about Downtown's favorable opportunities.

"While Midtown concessions have decreased slightly, the overall impression that owners in this market are gaining more control will continue to fuel interest in Lower Manhattan," Martin said. Meanwhile, the City Council's recent approval of a portion of Mayor Giuliani's revitalization plan will create additional incentives at a time when the gap between Midtown and Downtown rental rates is growing.

"Furthermore," Martin concluded, "there is the likelihood for increased demand for space from creative software/information technology firms, given the recent approval of turning the former Drexel building at 55 Broad Street into a high-tech building for developing technology companies. In addition, the area boasts a success of pre-built spaces ideal for small tenants and 'incubator' start-up businesses."

Interestingly, it appears that concerns over the financial service industry's recent downturn were short-lived. Positive signs are emerging now that many traditional Wall Street firms have stabilized and are beginning to witness a steady climb in productivity. Overall, the prosperity of this industry remains a vital element to Lower Manhattan's success.