The shape of commercial office leasing in '96.
A Glance at Manhattan Commercial Real Estate Leasing
In expressing the general consensus, Nicola Heryet, senior director of Joseph Hilton Associates, said "Although leasing activity in 1995 was flat, the Midtown market remains relatively stable."
Leslie Harwood, managing director of Newmark & Company Real Estate, Inc., added "Following mid-year increases, rental rates actually declined slightly and were lower at year's end than at year's beginning. Surprisingly, Class A space was particularly weak during 1995." Despite these figures several brokers and firms, including Newmark, reported banner years.
"In the short-term, we continue to see significant activity," said Audrey Novoa, managing director of Williams Real Estate. "This was evidenced first by a 'flight to quality,' but now there is a 'flight to value.' Companies are looking for space and doing deals, but for the most part, they are making lateral moves. They are moving to space that is similar or smaller in size than their current space."
All agree the Park Avenue South market, which has remained relatively healthy, received a definite boost from FirstBoston's move to 11 Madison Avenue. Heryet commented, "Subsequent to the announcement of the relocation, New York Life sold 63 Madison Avenue with a partial lease-back to a group of investors who hope to achieve the same level of leasing as Met Life did with 11 Madison."
The Downtown Incentive Plan is certainly the big news in that area, and although it's too early to have hard numbers on the effect, there are positive signs. "Real estate brokers are reporting an uptick in activity and tenant interest," reported Vicki Kahn, senior director at Jones Lang Wootton Realty Advisors. News from the Downtown front includes: the Information Technology Center at 55 Broad Street reporting healthy leasing activity; Francis Greenburger set to do the first residential conversion at 56 Beaver; numbers of other developers looking at residential conversions; and Trump set to revitalize 40 Wall Street.
Outlook for the Corporate Sector
"The buzz phrase in corporate office structuring today is 'more with less,' and it applies to space as well as people," says Carolyn Ugiss, president of Stamford, CT-based Corporate Property Consultants, Inc. "The average amount of space per person for major companies has shrunk about 30 percent in the last five years and the trend is continuing. Corporations want functional and technologically state-of-the-art facilities. There is much less emphasis on image addresses and high design. Companies that once occupied 'A' space are now seeking 'B' locations. There is also less interest in corporate ownership of office buildings, in part because of the overriding need for flexibility. Companies want shorter lease terms so they can adapt more quickly to ever shorter product cycles."
Nicky Heryet points to outsourcing and international expansion as two corporate real estate trends that will continue. "Although some corporations are setting up their own profit-making real estate departments, outsourcing for assignments on the local, national and international front is still common," she said. "However, rather than award national accounts to one real estate firm, as was common practice in the past, many corporations with multiple locations are now choosing to manage and coordinate their portfolios regionally."
Audrey Novoa shares Heryet's predictions for continued outsourcing and international brokerage opportunities. "As Corporate America continues to downsize, many inhouse real estate departments will continue to be eliminated or reduced, with much of the work being outsourced to the brokerage community," she said. "Because commercial real estate brokerage firms now have extensive global networks, they have the ability to service their clients needs nationally and internationally."
CREW members see an escalating demand on the part of domestic companies for assistance with their international real estate requirements. As a result, brokerage firms are scrambling, through their networks or on their own, to make international connections.
Trends in Retail
Kate Coburn, vice president of retail for Rockefeller Center Management Corp., said "Look for even more national retailers expanding into urban areas. Although rents in prime downtown areas are significantly higher than equivalent space in suburban malls, the sheer volume of sales they generate more than compensates for the higher rents and adds tremendously to the corporate bottom line. Examples include Chicago-based Knot Shop, Sunglass Hut of Miami and Brookstone, all of which recently opened in Rockefeller Center."
Other trends Coburn cited include: an increase in the number of flagship stores to be opened by fashion designers. Calvin Klein, Liz Claiborne, Armani and Polo are just the beginning. At least three more top names are in the market, each desiring to increase market share and take control of merchandising their products.
Coburn also predicted a shake-out in the coffee-bars. "There has been an over-expansion into the market (some at very high rental rates)," noted Coburn, "to the point where many of the chains have already put their weaker units on the sublet market. In a year or two, only the strongest will remain."
Betsy Rodgers, a partner at Rodgers & McCauley, Inc., agrees with Coburn about the continued New York City expansion and influx of national retailers like The Gap, "which is continually reinventing itself," she said. "High-end retail is also on the top of Rodgers' list. "Despite the dismal stories, New York retail is still incredibly strong, particularly at the high-end." Where will the retail expansion take place? "Look to Times Square, where retailer interest is strong," predicted Rodgers.
The Market in '96 and Beyond
The general opinion is 1996 will be much like its predecessor. The biggest question: jobs, jobs, jobs, and where are they coming from? The corporate climate seems to be cautiously optimistic, but "lean and mean" are still the catch words. For real estate, this translates into a nervous '96. "Although 1994 and 1995 brought Mastercard's move to Westchester and the announcement of Swiss Bank's move to Connecticut," said Heryet, "it also brought the retention of CS First Boston, Depository Trust, Colgate Palmolive, Equitable Life and other major tenants in Manhattan. The strength of New York City's real estate market as we move into the next millennium will largely hinge upon the City's ability to continue to build success stories through the retention and attraction of major corporate tenants."
Novoa is equally cautions regarding the long-term outlook. "Corporate downsizing and the contraction of many companies which has been taking place over the last five years (AT&T is just one example) brings the potential for a slower market in the future," she said. "Unless we see companies in certain sectors create jobs, rather than eliminate them, thereby creating a need for additional office space, the activity level will not increase. This does not mean there won't be important deals, just that they will be smaller and less frequent."
All agreed that New York's place as an international center would continue to be an important factor. But as Heryet said, "The question facing Manhattan as it enters the next millennium is whether or not major American corporations will continue to call it home."
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|Title Annotation:||Annual Review and Forecast; Manhattan, New York, New York; 1996|
|Publication:||Real Estate Weekly|
|Date:||Jan 31, 1996|
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