New York: slow but steady recovery.
What remains to be seen is whether or not New York City will show net absorption by year end. But one thing is certain, tenants are definitely more eager to make commitments as well as conclude longstanding negotiations.
The pace of leasing activity was initially stimulated by tenants pursuit of lucrative concessions, rental and escalation packages available from landlords. From this, a self-perpetuating situation arose. As tenants have been witnessing transactions, they also perceive an improving market. Suffice it to say, the present leasing activity is different than what was experienced at this time last year, and for the most part, a bit more solid. Last year, most of the activity involved tenants either taking advantage of the soft market with economically favorable, long term deals or consolidating space due to corporate restructure or bankruptcy. The activity this year however, is more in the direction of growth and recovery.
Recent major commitments in New York, such as the Coudert Brothers deal and the Fish & Neave's relocation to Avenue of the Americas, certainly indicate a healthier form of activity and perhaps an improving marketplace. Another significant growth area can be found in the 30,000 to 50,000-square-foot corporate commitment. An example of this is the Discovery Channel's 30,000-square-foot lease at 641 Lexington. As many experts have been predicting, business activity will be coming more and more from a broad base of mid-sized companies.
Make no mistake about it, this is still a tough period for landlords, even though the deals seem to be more reasonable and healthy. To address this issue, the city of New York needs to develop a cohesive plan to ensure that the recent deals continue and translate into an overall market improvement. In a time of economic difficulty and with the advent of telecommunications, the mayor's office must realize that there is clearly more competition and more options for corporate relocations in the tri-state area and indeed across the country. The city must respond to this by developing broad-based incentives for tenants as well as tax breaks for landlords. The outcome will be to the ultimate benefit of New York.
The big question on the horizon is what will occur from the Olympia & York situation, and how it may effect the rest of the industry. In the 1980's, by providing significant workletters and takeover deals, O&Y had somewhat set the trend for the industry. When and hopefully if the firm is restructured, the banks will no doubt swap debt for equity and may have to potentially outlay additional cash to buy out the second tier banks and bond holders. As a result, their banks may restrict future workletters and takeover deals, and instead insists on more net effective transactions. If this occurs, it may subtly change the way the market formulates leases across the board, which may not be altogether detrimental to the industry. Ironically, O&Y may once again set the pace for the real estate industry, but in a new direction for the 90's.
Again key elements to ensure an improving real estate market in New York are a definable uptick in the economy, assistance from the city by way of a well thought-out proactive plan and a concerted effort to keep the landlords viable. In addition, the market should not underestimate the importance of a successful O&Y restructure. The brokerage community should support and assist O&Y through this process as well as other landlords facing similar straits.
Finally, there are probably no more surprises in store for the New York real estate market. We have clearly bottomed-out and are looking towards an upward cycle. With an improving economy and consistent city incentives, New York the landlords and tenants within the city, will be positioned to take advantage of a more healthy market.
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|Title Annotation:||Review and Forecast, Section III|
|Publication:||Real Estate Weekly|
|Date:||Jun 24, 1992|
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