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Manhattan leasing improves in first half.

"Overall activity in Midtown Manhattan was up during the first six months of 1993, with a total of 9,930,436 square feet leased, representing a 24.5 percent increase over the 7,973,461 square feet leased during the first half of 1992," said Maurice Solomon, vice chairman and manager of the Midtown office of Julien J. Studley, Inc.

This comes despite a slight decrease in activity during May/June, with 3,284,778 square feet leased in all buildings.

Law firms, entertainment and communication companies, government agencies and foreign banks continue to dominate leasing activity in Midtown. "In particular, law firms will continue to actively lease quality space, specifically along the Sixth Avenue Corridor, where numerous opportunities exist for tenants seeking 30,000 to 75,000 square feet," said Solomon.

The most notable level of activity during the May/June reporting period occurred in the Plaza I area (Second Avenue to Fifth Avenue, 54th Street to 61st), where 371, 459 square feet were leased, representing a sizeable increase over the activity of May/June 1992. The majority of the transactions contributing to this activity involved medium-sized space takers.

The level of available space continues to fall, with 43,863,347 square feet currently offered for lease. This represents a 4 percent decrease from the first of the year, and a 13.7 percent decrease from the same period one year ago, when 50,817,793 square feet were available. Accordingly, overall vacancy rates in Midtown have fallen to 16.5 percent.

"The gradual leasing of large blocks of quality space in Midtown has left only a handful of opportunities for tenants requiring 100,000-500,000 square feet of space," pointed out Mitchell S. Steir, senior managing director and manager of Studley's Midtown office. "Eighteen months ago, these same tenants enjoyued twice as many alternatives."

However, more than 1 million square feet of premier space is expected to come on the market starting at the end of 1993. A good portion of this upcoming availability will be from Chemical Bank's relinquishment of approximately 900,000 square feet of space at 277 Park Avenue in 1994. Moreover, a number of lease turnovers expected at Rockefeller Center over the next two years will further contribute to the supply of available space.

Despite the overall decline in available space, the market is still relatively oversupplied. As a result, rental rates have dropped, with new space at $40.70 per square foot, compared to $43.50 per square foot one year ago. However, it is expected that these rates have stabilized, and in some cases, will slowly begin to rise.

Downtown New York

"Leasing activity in Downtown's commercial real estate market improved dramatically during the May/June reporting period, with 818,078 square feet leased," said George Martin, executive vice president and manager of Studley's downtown office. This is a significant increase over the 305,110 square feet leased during March/April and brings the year-to-date figure to 1,410,393 square feet. The bulk of the activity during this reporting period can be attributed to Bank of America's lease for approximately 300,000 square feet at One World Trade Center.

Unlike previous reporting periods, when many tenants opted for Class B properties, the majority of activity in May/June was in Class A properties. "This is due to the fact that these latter properties, in an effort to secure tenants, are offering very favorable economic terms for both long-term direct and sublease transactions," noted Martin.

Tenants without an immediate concern for lease expiration dates will continue to "shop around" for quality sublease and/or direct opportunities. However, there are a number of large transactions under negotiation which are expected to be finalized before the end of the year.

Despite the overall increase in activity during May/June, the Downtown market continues to be relatively sluggish. Landlords continue to aggressively pursue early renewal of their tenants, and are willing to sacrifice some short-term cash flow for longer lease periods. Ultimately, landlords hope to minimize the capital outlay required to attract new tenants.
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Title Annotation:New York, New York office leasing activity reported by Julien J. Studley Inc. for first six months of 1993
Publication:Real Estate Weekly
Date:Jul 21, 1993
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