NYC office market should be better in '96.

Despite some disappointments and areas of concern, the New York office market had a reasonably good year in 1995 and, if the economy doesn't falter, should have an even better year in 1996.

That doesn't mean there aren't big question marks facing the real estate community as we head into the New Year.

With so much jockeying and trading of positions taking place, will the holes left by vacating office tenants be filled in 1996? Will the Durst project go up? Will Ronson succeed with not one, but two major development commitments?

One thing appears certain. If there's a bright spot in the Manhattan office marketplace, it's the strong potential of Lower Manhattan. With the Mayor's plan now approved, we should witness a gradual upswing in both sales and leasing activity in the months ahead. The retention of the Coffee, Sugar & Cocoa Exchange was another plus for Lower Manhattan during the second half of 1995.

Moreover, as we headed toward the end of the year, Downtown rental rates seemed to have recovered to around $26.25 a square foot, and the World Trade/World Financial Center submarket was leading all Lower Manhattan sections with an average asking rental of better then $34 a foot. A study by our company of vacancy and rental rates by quality of building also underscored the relative health of new Class A product in the area. We found that properties built after 1974 continued to enjoy strong results, as direct availabilities in this segment dropped to only 6.82 percent. This contrasts greatly with unrenovated structures built between 1950 and 1973, which labored under a 37 percent vacancy rate on a direct basis.

The situation Uptown is far more subtle and subject to interpretation. While 1995 figures took into account major space commitments made by Equitable Life Insurance Society (513,000 square feet) and Avon Products (226,000 square feet), the impact of the space those companies will vacate in their relocation/consolidation moves is not yet totally reflected in the latest available space figures and could eventually represent a loss rather than a gain for the marketplace.

Informed sources, for example, believe that Avon - currently headquartered at 9 West 57th Street, will ultimately give up more than it takes. In another mega-transaction having a major impact on Midtown availabilities, CS First Boston has finalized its lease for 1.1 million square feet at 11 Madison Avenue. The consolidation from Midtown locations, including 55 East 52nd Street, 12 East 49th Street and 509 Madison Avenue, is first scheduled to 'begin in early 1997. Additionally, the Chemical Chase merger may have a significant impact, as both banks occupy significant Midtown footage and will most likely consolidate space.

Still, the Midtown market has shown tremendous resiliency of late and historically, so the feeling here is that 1996 will likely be an upbeat year for New York's office section.