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New optimism emerges in NY office market.

A new optimism and enthusiasm has emerged in the New York market. National economic indicators show that we may be on the verge of a true recovery, and confidence has been boosted as a result.

Fortune magazine recently ranked New York as one of the top 10 cities to do business in the country. This is certainly a reversal of New York's recent standings in such polls.

Leasing activity has increased 20 percent in 1992 over 1991 year to date in Midtown. Firms are taking advantage of a tenant's market, and improving their Space, while lowering their occupancy costs.

Tenants have recognized the value that exists in today's leasing transactions. With increasing pressure placed on corporate America for profitability, alert executives are seizing the opportunity to relocate. Additionally, the disproportionate premium for being in the best locations in Midtown versus a suburban location has narrowed significantly.

As a result, the leasing market appears to have hit bottom and started to stabilize. Major firms such as Price Waterhouse, Ernst & Young, and CIT Financial have made major commitments, and several other large firms are expected to do the same in 1993.

However, we expect that vacancy rates will decrease at a very slow pace over the next year. Leasing is stronger and there is no new construction. Every corporation will continue to look at the operating efficiencies of their business and will expand only with extreme caution. As a result, employment will not increase, and job growth fuels improvement in real estate markets.

From a user standpoint, tenants will continue a flight to quality in 1993. Tenants will be attracted to the better managed, more financially stable and better located buildings.

The city of New York will continue its hands-on government incentive program for major tenants which are considering moving out of the city. Certainly, some major tenants will take advantage of these initiatives.

Landlords who face the economic realities of the market, particularly those that are financially sound, will do well in the 1990's.


Vacancy rates in Downtown Manhattan will slowly drift down because of the lack of new construction, but they will not reach a normal level for several years.

The market is driven by price. As a result, there's been a great deal of movement from Class B to Class A space. Tenants are upgrading their facilities, while, often times, lowering their rental costs.

We expect this repositioning to continue for the next several years. The winners will be the newer, better located buildings which have kept costs down and remained competitive.

Overall, in this decade New York will solidify its position as the international, financial and communications capital of the world.
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Title Annotation:Review & Forecast, Section III; office leasing activity expected to improve in New York, New York real estate industry
Author:Vanderslice, Jim
Publication:Real Estate Weekly
Date:Jan 27, 1993
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