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Slowdown in new supply may mean bottoming out.

The New York City real estate market has shown more signs of bottoming out as the growth of available space has slowed over the past six months. However, rents in both Midtown and Downtown continue to weaken, according to second quarter market statistics issued today by CB Commercial Real Estate Group, the nation's leading commercial real estate services firm.

Vacancy rates across Manhattan have remained constant since the end of 1991, which may signal the stabilization the New York market needs, according to Steven A. Swerdlow, executive vice president and managing officer of CB Commercial in New York City.

While vacancies have remained essentially unchanged, rents in both Midtown and Downtown have continued to erode, as landlords become more price competitive to fill empty space.

"Tenants are upgrading to higher quality, better located, class A buildings, capitalizing on the current market," said Swerdlow. "Tenants will continue to focus on prime Midtown buildings held by strong owners which should help strengthen the Midtown market."

Midtown

The vacancy rate inched up slightly since the close of 1991, increasing 0.43 percentage points to 15.21 percent.

"Any continued improvement will first be seen in Midtown," said Swerdlow. "As the econoy improves, so will the Midtown officer market."

There will be a slight rise in the Midtown vacancy rate when Americas Tower opens later this year and when 565 Fifth Avenue comes on line in 1993.

The opportunities for tenants to upgrade their space continue as rents remain low, dropping four percent from $36.46/square foot at the close of 1991 to $34.90/square foot today. Additionally, tenants are still getting substantial free rent and work letters, reports Swerdlow.

Downtown

Downtown vacancies have remained almost constant since the end of 1991, at 20.32 percent. However, CB Commercial does not foresee an improvement in this market soon as demand remains soft and few large space users are in the market. "The troubles of Olympia & York will have the greatest psychological impact on the already weak Downtown market," said Philip Sprayregen, managing director of CB Commercial in New York.

"Additionally, it is the downtown businesses that are more likely to threaten a move to New Jersey or Brooklyn in order to get rent concessions from owners," reported Sprayregen. Asking rents continue to decline, dropping to $25/square foot today from $26/square foot at the end of 1991 -- a four percent drop.

This decline has brought many Downtown Manhattan properties to a better competitive position with buildings in New Jersey and Brooklyn, reports Sprayregen. Still, the lower tax structure and reduced operating costs in New Jersey provides a distinct advantage that lower Manhanttan property owners find difficult to match.

A return to lower vacancy rates Downtown will depend heavily on a resumption of growth on Wall Street. The strong profits recorded in 1991 by the financial services industry have not translated into increased occupancy requirements, because many of these firms have shifted offices outside the city to reduce their operating costs, said Sprayregen.
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Title Annotation:growth of available space slows; New York real estate market reaching bottom as rents weaken; vacancy rates remain unchanged for first half of 1992
Publication:Real Estate Weekly
Date:Jul 15, 1992
Words:501
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