Post-election leasing surge flattens out.
Leasing activity gathered momentum as 1992 ended and during the early months of this year. For the first time since 1989, last year saw some "positive" absorption of the huge amount of space overhanging the market, breaking a three-year period when the amount of square feet vacated annually exceeded that leased. At The Lincoln Building, the market's improvement since the election has helped us reduce our vacancy total by 12 percent on a year-to-year basis. A year ago, our vacancies totaled 114,000 square feet of space and our occupancy rate was 89 percent; now vacancies have been reduced to 100,000 square feet and the occupancy rate is 91 per cent. During our spring renewal season this year, leases for about 40,000 square feet of space were expiring. In the improved market atmosphere, we were able to rent 90 percent of it in renewals or in leases to new tenants.
Signs of Sputtering
By mid-May, though, there began to be signs that leasing activity had lost its momentum and was beginning to sputter. The post election euphoria was obviously wearing off. People were becoming scared and uncertain about higher taxes. There was a growing feeling that the economy had simply not improved.
Three weeks later, as these comments are written, there seems to be a consensus in the industry that whatever recovery there is in the market, is anemic. While there's more activity, deals are still very slow to close. The market appears to be going flat again, and it will take positive action by Washington on the economy before we can expect a strong, lasting move toward recovery by the market.
Meanwhile, owners and managers still face a strong tenants' market where creativity will be a very important part of' closing deals -- all the more as we move into summer, traditionally a very slow period for leasing. Creating a product that satisfies the concerns and meets the needs of prospective tenants will also give buildings an edge whenever the market does launch a strong recovery.
During the renewal season, tenants of The Lincoln Building, who had been looking around before signing again with us, told me that our building was quite competitive with others of our class. They said, though, that the reason they renewed with us was our continuous modernization programs which addressed their concerns about being in an older building. Specifically, they mentioned the restoration of the lobby's unique ceiling, a work of art unequalled anywhere else, plans to modernize the building's 42nd Street facade and to floodlight' the crown of the building and its front from the seventh floor down.
One-third of the building's tenants are lawyers or accountants and one of the attractions of it for them is The Lincoln Building Law Library. In another current modernization, we are increasing the library's size by one-third and upgrading its facilities.
In spite of the difficulties caused by the recession, our occupancy rate, since it began, has never dropped below 88 percent. Important reasons, of course, are the buildings location directly across 42nd Street from Grand Central Station, and the continuing programs to maintain and modernize it. Another is that we have always been a building for small-to-moderate space users, and losing one key tenant does not spell its success or failure.
Our ownership has been active in real estate for a long time. It offers stability in good times and bad. During this recession, the owners continued to put money into The Lincoln Building so that, when the tide does turn, we'll be the first to take advantage of the situation.
When will that time come? When Washington stops foundering. People need to feel secure about their jobs and finances. When they're uncertain about either, they're not going to buy that new or extra car, appliance or house. Nor are companies going to rent that extra space, if they may not need it after all.
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|Title Annotation:||Mid-Year Review & Forecast, Section V; increase in New York, New York commercial leasing activity after Presidential election levels off|
|Author:||Spielman, Charles H.|
|Publication:||Real Estate Weekly|
|Date:||Jun 23, 1993|
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