Survey: recovery to begin late this year.
The report expects rent concessions to generally remain at their current levels, with a slight decline in both the asking and more indicative effective rents through the remainder of 1993. The decline in rents of almost 15 percent experienced in the 1991-1992 period has slowed, with no more than an additional two to four percent decline expected this year.
This forecast is predicated on a steady, if slow, improvement in net absorption of office space this year. Should this occur, the Wm. A. White/Grubb & Ellis report indicates a tightening of space availabilities - especially in Midtown - may provide the impetus for an upward movement in effective rents in this submarket by the end of the year.
Leasing activity at the end of 1992 resulted in net absorption of office space in Midtown of approximately 1.5 million square feet, the first year of positive net absorption since 1989.
As a result, the Midtown market ended the year with a 16.2 percent vacancy rate, compared to a 17.9 percent vacancy rate at the end of 1991. Actual available space in Midtown totaled 24.6 million square feet at the end of 1992.
The most dramatic change occurred in Midtown's West Side district, where vacancy rates fell from 21.4 percent in, 1991 to 17.6 percent in 1992. Buildings completed in the area in 1990 and 1991 had remained essentially vacant until last year. The purchase of 1540 Broadway by Bertelsmann, A.G., representing 869,000 square feet of space, was a pivotal event for West Side activity. Improvement also was seen in the Sixth Ave./Rockefeller Center district, where vacancy rates fell to 14.0 percent from 16.3 percent a year earlier.
The Park Avenue corridor remains one of the City's most desirable locations, with a vacancy rate of 10.6 percent, the lowest in Manhattan.
A continued shrinking in the supply of larger, prime blocks of space in Midtown could have a positive impact on the Downtown market - which has been extremely weak - and touch off a price-led migration to lower Manhattan, according to the Wm. A. White/Grubb & Ellis report.
to Continue Downtown
However, the outlook for the Downtown office market calls for a continuation of reduced demand and very attractive lease terms. But, 1993 is a pivotal year for tenants looking to secure advantageous leasehold positions in the area. The newer competitive properties will tighten, as space in the more attractive buildings is absorbed.
No near term solution is in sight for the older, uncompetitive Downtown properties, and they will continue to experience high vacancy rates, according to the firm's New York market report. Space under lease in the Downtown market dropped by nearly two million square feet in 1992. Available space increased to 25.6 million square feet, or 25.3 percent of available inventory. Asking rents in Midtown continued a downward slide in 1992, down another 4.4 percent. Effective rental rates ended the year at an average $28.58.
The effective rental rates for Manhattan office space are expected to decline only slightly through the rest of 1993, with concessions holdinq at their current level. A stronger than expected improvement in the absorption of vacant space in the midtown area and competitive downtown buildings, if it occurs, may provide an upward movement in effective lease rates by the end of the year, according to Research Director Paul Arena.
City at Crossroads
New York City is at a crossroads, Arena noted. A national economic expansion will have a favorable impact.
But, the magnitude of jobs lost since 1989 has left the City weak, making future growth much harder to achieve. The City finds itself with a need to decrease or eliminate certain taxes to support and attract business, while at the same time attempting to provide quality services under a reduced budget.
Under these conditions, the responsibility for keeping businesses in the City has in many cases shifted by default to landlords, building owners and civic minded groups, the Wm. A. White/Grubb & Ellis report said.
In efforts to improve quality of life issues that also influence business activity in the City, landlords and property owners have formed Business Improvement Districts (BIDS) in several areas in the city. Annual operating budgets are drawn principally from property assessments levied over taxes. Funds are directed to pay for services such as private security, increased sanitation and the construction and staffing of taxi stands and information booths. BIDS currently exist in the Grand Central area, the 34th Street area and the Times Square business improvement District, among others.
This growing trend towards BID formation, the Grubb & Ellis report continues, represents the "a la carte-ization" of state and local services, where corporations and firms pay a premium over taxes for city services and continued access to amenities normally enjoyed in a urban metropolis.
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|Title Annotation:||Wm. A. White/Grubb & Ellis report on New York City commercial real estate market|
|Publication:||Real Estate Weekly|
|Date:||May 26, 1993|
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