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CB Commercial finds hint of stabilization.

CB Commercial finds hints of stablization

Commercial real estate in New York City has shown early signs that it may be stabilizing, according to the third quarter market report by CB Commercial Real Estate Group, the national commercial real estate services firm.

The report shows the rate of decline in market fundamentals has slowed considerably throughout the year. Vacancy rates have risen only modestly since the end of 1990. In Midtown, vacancy rates are stabilizing at 14.96 percent, compared with 14.70 percent at the end of 1990, and 18.9 percent in Downtown compared with 18.70 at the end of last year.

"While current market performance is no cause for celebration, it does give comfort to those of us who have been looking for light at the end of the tunnel," said Steven A. Swerdlow, executive vice president and managing officer of CB Commercial in New York City. "It's been a difficult two years since the New York economy slipped into recession. Now, perhaps, there are reasons for some optimism."

Only two significant Midtown office buildings are currently under construction, so available space should remain at its current plateau, although there is a potential for a vacancy rate spike when these properties come on line next year.

"The road to recovery in Manhattan real estate will be rocky. Certainly, we haven't seen the last of the building foreclosures and bankruptcy filings that have plagued several buildings," Swerdlow said. But as we head into the home stretch of 1991, the evidence suggests that the worst is behind Manhattan real estate and, hopefully, 1992 will be a better year."


By almost any measure, the Midtown market remains weak. Compared to a year ago, rents have declined and vacancy rates -- although beginning to level out -- have increased. An impetus for the leveling of vacancy rates has been the increased propensity of landlords to reduce rents and concessions, reports Swerdlow. This is evidenced by the decline in asking Midtown rents from $38.32 year end 1990 to $37.13 today.

"Looking forward, the prospect of two major office buildings (with 1.4 million square feet of uncommitted space) coming on line next year could upset the scenario of improvement in the Midtown market. However, we expect whatever setback caused by this increase in supply to be temporary, and the recovery scenario to continue," said Swerdlow.


"Slowly, the Downtown market seems to be climbing out of the deep hole caused by the 1987 stock market crash and subsequent withering of New York's financial sector-led economy," said Swerdlow.

Vacancy has just about leveled to the rate of a year ago, attributed to the fact that less sublet space is now becoming available in the Downtown market -- although growth in supply continues to exceed demand, according to the CB Commercial report.

Asking rents continue in a downward slope, as landlords attempt to more effectively compete on price both with properties within the City and in the suburbs.

A return to low vacancy rates Downtown will depend heavily on Wall Street's continued recovery and a turnaround in the fortunes of the banking sector. Whatever progress is made on these fronts will be gradual.
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Title Annotation:CB Commercial Real Estate Group
Publication:Real Estate Weekly
Date:Dec 18, 1991
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