Has the tide turned for NY real estate?
To be sure, 1993 was the best market, in terms of activity, that the industry has seen in quite some time. While still considered by most a "tenant's market," especially for small users, the demand for large blocks of space in Midtown has signaled what is sure to be a long, steady climb back in values. In 1994, owners of prime Class A office space will offer less in the way of free rent and construction concessions, as the availability rate slowly declines.
Midtown and Midtown South are leading the way in this market turnaround, and fewer and fewer large blocks of space will be available in 1994. With an almost total lack of new construction in the foreseeable future, declining large vacancies in Midtown will surely mean good news for other areas of the city, especially Downtown, which has yet to see a real turnaround, except in the Trade Center District.
Opportunities for owner-operators will abound in this struggling market, but most experts believe a recovery Downtown is still a few years away, and many believe that some of the older, obsolete office buildings will have to be demolished unless a new wave of conversion investment materializes.
Overall, New York City has one of the lowest commercial real estate vacancy rates in the country at about 15.5 percent, according to Oncor International. White Plains, however, reflects the tough time corporate consolidations have had on the entire County of Westchester, amassing a staggering 35 percent vacancy rate in the Central Business District and 26.9 percent overall, trailing only Dallas, Texas and Fort Lauderdale, Florida for the dubious distinction of highest vacancy rate in the country.
Although rental rates continue to decline slightly, this trend has slowed and shows signs of flattening out, and New York City still commands the highest average Central Business District rental rate in the country at $31.15 per square foot. However, New York also has the largest inventory of available space in the world at about 30 million square feet, more space than most cities have in their entire inventory.
On the retail scene 1993 saw a flurry of activity in almost every sector, as foreign and domestic retailers began to rediscover New York, and the trend toward suburban shopping centers began to reverse. The return of Barney's to New York was the highest story, but Fifth and Madison Avenues also regained vitality, as did almost every major thoroughfare in the city. And oh, those coffee bars, coffee bars, coffee bars!
In property management, the real estate industry underwent a consolidation of their own in 1993, with some major companies going the merger route in an effort to hold the line on costs. It was also the year of the return of the full-service corporate real estate advisory companies, with big national names like Marcus & Millechap and Cushman Realty establishing offices in New York.
It was also a good year for residential real estate, with the higher end luxury apartments once again selling and prices inching upward, and the market for smaller apartments and lofts showing signs of following.
Some of the biggest stories of 1993 were Zeckendorf's remarkable turnaround of the CitySpire luxury tower in Midtown, where over 70 units were sold this year, as well as the success of the Alexandria and The Mondrian (formerly the Grand Palais). Donald Trump also scored a success with the near sell-out of his Trump Palace.
In the financial sector, 193 saw the continuing popularity of Real Estate Investment Trust (REITs) and the emergence of Real Estate Mortgage Investment Conduits (REMICs) as a new funding source for developments.
For 1994, experts foresee a limited return to the New York City market by traditional sources of funding such as insurance companies and pension funds, while commercial banks will probably remain on the sidelines.
In the pages ahead, experts from all facets of the commercial property market throughout the tri-state area offer their takes on 1993 and predictions for 1994, two of the most significant and promising years in nearly a decade.
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|Title Annotation:||Annual Review & Forecast, Section I; evaluation of 1993-94 New York commercial real estate market|
|Author:||Gerard, Eric R.|
|Publication:||Real Estate Weekly|
|Date:||Jan 26, 1994|
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