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Absorption outstripping added space.

Although the light at the end of the tunnel isn't blindingly bright, the Manhattan office leasing market scored a significant rebound in 1992. By yearend, at least 2 million square feet had been absorbed in Midtown alone; a complete rebound from the previous year when more than 3 million square feet were added to the market.

Acting both as a tenant representative and leasing agent, I personally completed 130 lease transactions during 1992, encompassing approximately 600,000 square feet throughout Manhattan. In the vast majority of these leasing transactions, the tenant committed for more space than it previously occupied.

The significance of this upswing to New York City's economic health is undeniable. The 2 million square-foot figure translates to 8,000 new, permanently employed office workers. Everyone, it seems, is doing business again.

I believe that it became clear during the second half of the year that Manhattan rents had bottomed out. Apparently, there will be no more dips in Midtown market rental rates.

The corporate tenant community concurs that the market has gone down as far as it will go during this cycle. Accordingly, tenants who previously maintained a "wait and see" approach to the market are now signing their lease documents without much hesitation.

On the owners' side, space is tightening; large blocks of office space are becoming more difficult to find.

Institutions that either own buildings outright or provide financing, are now evaluating leases and concessions with a cap rate. This is very significant. Owners are evaluating leases in terms of their impact on a properry's value.

At Newmark Real Estate Services, we have observed a complete turnaround from the climate of urgency associated with halting the tide of vacancies. In 1993 and beyond, asking rents will reflect the goal of adding value to buildings, rather than cutting off negative cash flow and carrying costs.

The vast majority of tenants in this market are smaller space users. Owners are looking for credit worthy prospective tenants. This definition would apply to a tenant whose net worth is between five and 10 times their annual rent obligation - no shell corporations.

In the 5,000 to 10,000-square-foot range, there is plenty of available space in the marketplace. However, it bears repeating that concessions are tightening.

In conclusion, it should be noted that the industry evolved considerably during the past year and continues to adapt itself to market conditions. The leasing sector is amazingly healthy and capable.

For example, 500 Fifth Avenue is an excellent, world-renowned' skyscraper. Yet, during part of 1992, it was in Chapter 11. Had it been in bankruptcy just five years ago it would have been shunned by prospective tenants. In 1992, however, we completed 32 transactions aggregating in excess of 70,000 square feet within 500 Fifth Avenue. Twelve of these leases were completed during the Chapter 11 period. This success rate is a testament to New York City's economic strength as a world business capital.

Here is a partial list of transactions I completed in 1992:

* Carnegie Hall Tower for 145,000 square feet

* 145 East 32nd St. for 45,000 square feet

* 1500 Broadway for 30,000 square feet 4 Columbus Circle for 17,000 square feet 111 Broadway for 67,000 square feet

* 500 Fifth Avenue for 80,000 square feet

* 575 Fifth Avenue for 20,000 square feet 50 Broadway for 49,000 square feet

* 518 Fifth Avenue for 20,000 square feet
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Title Annotation:Review & Forecast, Section II; absorption of available office space in New York, New York outweighs space vacated
Author:Cohen, William G.
Publication:Real Estate Weekly
Date:Jan 27, 1993
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