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Leasing now aggressively competitive.

Economic conditions weren't providing much uplift as this year began. The] euphoria that followed the quick military victory in the Gulf a year earlier had long since dissipated, and the expectations it generated for a fast economic rebound remained unfulfilled. Although some economist were still claiming economic recovery was in progress, the public had grown weary of experts and very skeptical of their views after too many off-the-mark predictions in 1991.

The outlook for recovery became more positive in April when there were some very encouraging developments. Actions by the Federal Reserve to lower interest rates demonstrated a further commitment to stimulating growth, and a succession of indicators points to improving economic conditions. Later reports generally confirmed the upward trend and, as the first half came to an end, there was broadening consensus that a genuine, if slow re very was in progress.

In the Manhattan office market, we are confronted by a huge inventory of available and potentially available space - created by the recession, the large number of new buildings completed about the time it was beginning, and the rollover of major leases in the buildings built in the last major construction boom in the 70s - that is not likely to be absorbed until there is major improvement in the economy. Consequently, we continue to deal with a strong tenants market. Renting space is aggressively competitive; negotiations are prolonged and complicated.

Nonetheless, in the last year-and-a-half or so, large amounts of space have been rented and there are some signs of a recent improvement in demand. At One Penn Plaza, for example, over a 14-month period ending in May, we rented 450,000 square feet of space, 100,000 of them in this year.

One of the advantages of the present market for space-seekers is that companies, which settled for less expensive secondary space in the booming 80s, can now afford better quality space and locations. With the generally lower prices today, the difference in rentals is not as great.

The large amount of still vacant space in buildings that the 80s boom added to the Manhattan roster obviously weakens overall market demand. Preferred locations, not directly burdened by this oversupply, and with limited amounts of quality space available, are likely to benefit more quickly as the economy recovers than others. Our 34th Street midtown area is one of them.

The last development of new office buildings here ended ten years ago. One Penn Plaza with 2.5 million square feet came on stream just as the 70s slump was beginning and it took some five years to fill it with tenants. As demand for space in the area continued to grow in the 80s, many older office buildings were rehabilitated and other structures were converted to office space.

By mid-decade, developers were again attracted to the area. Plans were announced for millions of square feet of new office space, including two new office towers on Ninth Avenue and one to replace Madison Square Garden, which was to be relocated further west. However, the stock market crash of 1987 intervened and the plans were postponed or cancelled as the office market started to falter. Madison Square Garden, remaining in place underwent a $200 million renovation. With no construction now under way, it will be a long time before a new building will be able to offer office space to tenants.

Meanwhile efforts continue to enhance the 34th Street area as a place to do business. Penn Station, centered at the hub of the area's greatest asset, its extensive public transportation network, became Amtrak's sole station in New York City in 1991, after a $22 million renovation of passageways to and from trains, passenger facilities and other amenities. Now Amtrak, expecting significant growth in ridership over the next 10 years, is studying the possibility of creating a spacious new passenger station in the general Post Office building on Eighth. The Postal Service, which will vacate much of the building's space next year, is receptive.

The Long Island Railroad is on schedule with a capital improvement program of nearly $200 million which will be completed in the latter part of 1994. The Long Island Railroad concourse will be completely climate conditioned, there will be new signage, increasing public space, and access to streets and trains is being improved.

On January 1st this year, the 34th Street Partnership swung into action on the streets of the area's new business improvements district to supplement city services in making its streets and sidewalks safer and cleaner. By the end of the first quarter, the partnership's initial efforts had produced impressive results, offering great promise for its future contributions to revitalization of the area.
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Title Annotation:Review and Forecast, Section V; office leasing, New York, New York
Author:North, Daniel E.
Publication:Real Estate Weekly
Date:Jun 24, 1992
Previous Article:Office suites impacted, but weathering the storm.
Next Article:Auctions achieve market value via focused marketing.

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