New construction helping outer boroughs lure tenants.

As available space in Midtown Manhattan and Midtown South continues to decline, some tenants are willing to pay a premium price to remain in New York City's most expensive business district, while others are embracing the reduced rental rates and new construction opportunities being offered in the outer boroughs.

Due to a virtual lack of space in Manhattan's elite business districts, many firms are renewing leases early to "lock in" or are opting to add space, as it becomes available, to their existing leases.

The current market demands range from average rental rates of more than $50 per square foot in an older, established building, to $75 to $80 for new construction--which is virtually nonexistent. Of course, Class-A buildings within the more prestigious neighborhoods, such as the Plaza district, start as high as $150 per square foot.

One example of how rental rates are impacted by location is a building like 780 Third Ave., a 50-story, 570-foot high-rise office tower at the intersection of 49th Street and Third Avenue. Located within the Grand Central District, 780 Third Ave. has all the amenities of Park Avenue with lower rental rates.

From a 154-seat business conference center, available to tenants at no charge, to advanced business communications technology, concierge services and column-free floor plates, tenants have reduced the cost of maintaining executive offices in Manhattan without sacrificing award-winning building design, services and amenities.

These prevailing market conditions have finally returned to where they were prior to 9/11.

The lack of Midtown space, and expense associated with it, is prompting many prominent tenants--large and small--to seek Class-A executive office space elsewhere, namely the outer boroughs. This spillover has been fueled by new construction, significantly reduced rental rates, financial incentives and easy transportation access.

One hotbed for residential, commercial and mixed-use development that is being embraced by notable Midtown firms is Long Island City, Queens.

Recently cited by Mayor Bloomberg as New York City's newest central business district, the 37-block area of Long Island City was identified in 2001 as a growth area with significant potential for office, retail and residential development. That same summer, the region was rezoned to allow high-rise, high-density construction to foster reinvestment and redevelopment.

Court Square Place, a new 16-floor, 274,000 s/f Class-A office building in the final phase of construction, is one of a number of new developments that have contributed to the area's renaissance.

Among the "anchor" corporate tenants in Long Island City is Citigroup, which has established a major presence in the neighborhood during the past 15 years. They are currently building a second tower, which will serve as national headquarters for Citibank's credit card and branch banking division. Last spring, Reckson Associates Realty Corp. purchased the 1.4 million-square-foot, 50-story, Class A, Citibank office tower, further demonstrating the strength of the region.

As the only newly constructed Class-A office tower, Court Square Place is attracting financial and law firms, marketing and advertising agencies and insurance companies seeking sole-floor and multi-floor occupancy.

Upon completion, owner/developer United Nations Federal Credit Union (UNFCU) will occupy the first seven floors of the building, which will house its global headquarters. Currently, floors 8 through 15, with units from 15,000 s/f to 21,000 s/f on each floor--all with spectacular views of Manhattan--are being marketed.

While asking rental rates in Long Island City start at $42 per square foot, numerous corporate firms are leveraging incentives offered by the City to reduce their rents by up to 50 percent of Midtown Manhattan rentals through REAP and ICIP. Furthermore, the Court Square Place building is strategically located directly across the East River, just one subway stop from Midtown Manhattan.

While there has been a resurgence in leasing activity throughout New York City and the outer boroughs in the past few years, the current upward movement in rental rates is an indicator that companies are expanding their operations to grow their business--a benefit to building owners, employees and all New Yorkers alike.

BY GREG SMITH, EXECUTIVE VICE PRESIDENT

JRT REALTY GROUP, INC.