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'93 market has opportunities, no surprises.

Although New York's real estate market offered no surprises in the first half of 1993, we at Win. A. White/Grubb & Ellis remain optimistic that a resurgence is on the horizon.

Leasing activity is increasing rapidly as prospective tenants are realizing that the market has firmed, particularly for Class A space.

Indications that the market, particularly in Midtown, has stabilized and that the economy is showing some movement, give rise to our positive feeling. An increase in purchases of commercial real estate by users, illustrated recently by the sale of 4 East 54th Street to Banco Di Napoli represented by Grubb & Ellis, is an indication-that the market may be turning. This sales trend, in our experience, normally proceeds an up-turn in the leasing market.

Nevertheless the continuing high level of unemployment in New York and in urban centers across the nation together with the trend toward downsizing by corporations are tempering any dramatic office leasing surges at this time.

Despite this somewhat slow market, opportunities to make deals abound as net effective rents, considering concessions and discounting of face rates, average $28.56 and range from somewhat over $21 to $34.25, as reported by James

Mciskin, managing director, Wm. A. White/Grubb & Ellis.

Our office was involved in several 40,000 square foot-plus transactions indicative of tenants capitalizing on current market conditions. These include:

* Relocation of Mr. Sinai Hospital's financial and administrative divisions to 919 Third Avenue

* Renewal of United Nations Archives at 345 Park Avenue South

* New space leased at 666 Fifth Avenue for U.S. headquarters of Dentsu Corporation, the large Japanese advertising agency

Opportunities for attractive lease terms are widespread Downtown, as the vacancy rate there hovers at 25.4 percent. The last half of the year may prove to be pivotal for tenants looking to secure advantageous leasehold positions there, as tenants seeking larger blocks of space turn to look Downtown, following an anticipated shrinking supply of larger, prime blocks of space in Midtown.

Another factor that may well spur a move Downtown is the widening spread in the effective rents between Midtown and Downtown. As the difference in both asking and effective rents between the two areas continues to groW, tenants seeking to lower leasing costs will turn to the undertenanted Class A and B buildings downtown.

The mild Midtown leasing resurgence that occurred in the last half of 1992 continued at near the same pace through the early months of this year. Effective rent levels in Midtown, as we projected in our market report earlier this year, are continuing to stabilize. Average asking rents are no more than 2 to 3 percent below average rent levels reported at year end, and in some areas the rents are the same.

Downtown, a few major leasing transactions at the World Trade Center and Prudential Securities' lease of 500,000 square feet at 1 Seaport Plaza had little impact on the Downtown market which continues to hover at near the same vacancy rate of 25.4 percent that we saw at the end of 1992.

Improvement is being seen in all the Midtown submarkets, observes Meiskin of Win. A. White/Grubb & Ellis. Leasing activity in Midtown South improved in the first part of the year where there was a positive net absorption of 117,000 square feet.

Looking into the second half of the year, we expect concessions which remained generous in the second quarter to begin to tighten somewhat and be less expansive sometime in the third or fourth quarter. As this occurs asking rents may remain at their current levels, but effective rental rates may begin to rise somewhat by the end of the year. This is assuming that there is continued improvement in absorption numbers in the coming months. Indications are that activity in Midtown will continue to move cautiously upward in the last half of the year.

Should this increase hi-leasing activity and stabilization occur; reduced space availabilities in Midtown may even provide the impetus to move effective rents upward by the end of the year.
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Title Annotation:Mid-Year Review & Forecast, Section III; evaluation of 1993 New York, New York real estate market
Author:Spillane, Noel
Publication:Real Estate Weekly
Article Type:Column
Date:Jun 23, 1993
Previous Article:New nation of sellers and money sources.
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