Value, stable rents to dominate office market.
"1996 has the potential to be a super year for brokers," Shapiro said, previewing The 1996 Grubb & Ellis Market Forecast. "Overall, there is strong upside potential, as large blocks of space are available in very attractive Midtown locations, such as Park Avenue, Madison and 59th Street, Rockefeller Center and opportunities opening up in buildings such as 570 Lexington and 9 West 57th Street," Shapiro said.
"Activity at the start of the year reflects the good values in the market and this interest will result in deals, as landlords have come to recognize the reality of the marketplace.
"Last year, landlords got ahead of the market, raising rents after the rather heated leasing activity in 1994," Shapiro said.
But, the Manhattan office leasing market leveled off in 1995, according to the Grubb & Ellis forecast.
Landlords and leasing agents in Midtown over-estimated the market's ability to absorb an increase in rental rates, the study states. Rents rose $1.27 per square foot while 700,000 square feet of available space was added to the market. Weighted average asking rents jumped by 4.5 percent during the year.
The Park Avenue average asking rents increased by nearly $2 ($1.91) per square foot in 1995 to an overall asking rental rate of $43.36, according to the Grubb & Ellis study. The Corporate America sub-district increased by $1.88 per square foot to an asking rental of $39.65 per square foot.
One result is New York begins 1996 with more than 57 million square feet of direct office space available, (i.e. space available from building owners) plus an additional seven million square feet of sublet space. The variety of available space provides corporate tenants, especially those occupying 200,000 square feet or more, with significant choices. Much of Manhattan's available space, nearly 40 percent - equal to more than 20 million square feet - consists of sizeable blocks of office space of 100,000 square feet or more, the study reports.
"With rents stabilizing, we will see tenants take advantage of the values that now exist and trade up," Shapiro predicts. "But, any serious absorption of outstanding space will probably come from the influx and growth of entertainment firms and exciting new areas, such as the increasing number of computer-based firms developing new systems content, as well as other specialty service firms that depend largely on "brain power" for their success."
"New York has traditionally attracted companies that depend on what we might call the 'knowledge factor,'" Shapiro said. "The growth in the number of New York-based complies working to expand computer software content and systems applications is the most recent example."
According to the Grubb & Ellis forecast, roughly 800,000 square feet of space will either be absorbed or removed from the New York City office market in 1996, dropping the availability rate to 14 percent.
The jump in available space that occurred in 1995 resulted from a combination of economic pressures, such as budget-tightening, companies seeking to reduce occupancy costs, corporate downsizing and consolidations. Nearly two million square feet came back on the market as tenants renewed or relocated, but into smaller office space.
In Midtown, the Class A market opens the year with 22.9 million square feet available for lease, including 4.15 million square feet of sublet space. While the story is somewhat different in each of Midtown's sub-districts, what earlier was seen as a "flight to quality" might best be characterized in 1996 as a "flight to value," Shapiro said.
More than one tenant, for example, moved off Park Avenue for quality space with lower rents in Midtown or elsewhere in the City, he added.
The announced relocation of a millions quare-foot Park Avenue tenant - CS First Boston - to 11 Madison Avenue, together with new retail residential and entertainment developments, are stimulating an upswing in Midtown South. The area will continue to see an acceleration in leasing activity, the Grubb & Ellis study forecasts, but rental rates will remain stable.
The forecast, which is bullish on the continuing prospects for Midtown South.
Most of Midtown South is Class B stock, which tenants see as an alternative that is cheaper than Midtown and more convenient than Lower Manhattan.
As for Downtown, the Lower Manhattan Revitalization Plan introduced by Mayor Rudolf Giuliani will begin to have positive effects. While the market won't experience a sudden surge in leasing or conversions in 1996, it can expect to see a gradually accelerating pace of improvement, the Grubb & Ellis study said.
The investment sales market continued its recovery in 1995. Investment activity will continue to grow in 1996, spurred on by foreign investor demand and low interest rates.
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|Publication:||Real Estate Weekly|
|Article Type:||Industry Overview|
|Date:||Jan 17, 1996|
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