New York: recovered and thriving - real estate industry - Mid-Year Review and Forecast - Industry Overview
George H. Keller, IVNew York City has proven once again it has the resiliency to recover and thrive.
The commercial real estate market in midtown Manhattan is very healthy right now. We have reached something of an equilibrium; negotiations are not as prolonged and transactions are closing at a faster pace. Competition is prevalent on good space.
Vacancy rates have been dropping in midtown. The class A vacancy rate is at 11.4 percent as of May, as compared to 12.5 percent a year earlier. Direct asking rental rates have risen, to $35.13 per square foot in May 1996, from $34.24 a year earlier.
What does all this mean for the tenants, landlords, investors and brokers?
Tenants
As the market begins to tighten, landlords are becoming more demanding in lease negotiations. Thus, tenants cannot expect the landlords to be as flexible and negotiable in such areas as work letter, free rent periods, escalations, expansions, renewals, and base building work.
From a decision making standpoint, the process is becoming shorter because there is a certain amount of competition for prime space. Although tenants still need to perform extensive due diligence for any transaction, they cannot afford "paralysis by analysis." A stronger sense of urgency has developed in the marketplace.
Landlords
Class-A landlords are in a stronger position than they were a few years ago. They can afford to be a little more selective in terms of recruiting creditworthy tenants than they were in the past. Landlords sense the new competition in the prime Class-A market, thus they now have to make fewer concessions in aggregate.
Brokers
The broker of the 1990s needs to be a full service real estate professional. Gone are the days when brokers just "showed space." Today, we have to be real estate consultants, and help our clients with real estate strategic planning, financial analysis, space planning and design, and work to enhance the client's bottom line performance.
Investors
There is a lot of Class-B product on the market in midtown, such as 342 Madison Avenue, There hasn't been a lot of Class-A product available. Sellers can be confident that there is a lot of money for all types of product available: local investors, the institutions, Wall Street, REFITS and pension funds all have cash, and they are interested in midtown and have sporadic interest in downtown.
In the downtown market, 2 Wall Street, 45 Broadway and 21 West Street are on the market. Thirty-three Maiden Lane recently sold, and there has been a lot of activity on the available product. The fact that more class A product is on the market and the possibility of residential conversions has strengthened the downtown market.
Downtown
Downtown's Class-A vacancy rate has risen to 16.1 percent in May, 1996 from 14.9 percent a year earlier. AID's purchase of 175 Water Street was a major commitment to downtown. Dresdner Bank, A.G., General Electric Company, Waterhouse Securities and Joseph Stevens & Co. are among the tenants who have recently committed to downtown.
Downtown has also been aided by the Rudin Management Co.'s high technology specialty building at 55 Water Street and the Downtown Revitalization Plan spearheaded by Mayor Giuliani. At Cushman & Wakefield, we are confident that Downtown will evolve into a 24-hour city, with dining, residential housing, office space and recreational facilities.
Steeped in history (George Washington was sworn in as our first president in lower Manhattan), downtown has an important place in the economy of the metropolitan area. New York City as a whole has important place in the world economy, as the international capital of commerce and communications.
Overall, New York City remains a strong and vibrant real estate market. As the financial, communications and international capital of the world, New York is well positioned to succeed well into the next century.
GEORGE H. KELLER IV Senior Managing Director Cushman & Wakefield, Inc.
COPYRIGHT 1996 Hagedorn Publication
COPYRIGHT 2004 Gale Group