Midtown leasing well-positioned heading into 1999 - real estate market in Midtown Manhattan - Industry Overview

The Midtown Manhattan commercial real estate market remained strong throughout 1998, and despite recent global economic turmoil, is well-positioned for the new year. Fueled by a thriving local economy and limited new development, the Midtown office market has enjoyed tremendous leasing activity, rising rental rates, diminishing rental concessions and single-digit vacancies.

The high volume of leasing activity experienced in the Midtown market during 1998 served to lower the area's overall vacancy rate to 8.5 percent and the area's Class A vacancy rate to 7.3 percent. Overall average asking rental rates in the market spiked to $46.04 per square foot, with some choice buildings in prime areas like 1221 Avenue of the Americas fetching rents of as much as $62 per square foot.

Much of the leasing volume in Midtown during '98 was the result of several sizable transactions, which ultimately diminished the number of alternatives for Midtown's large space users and has forced many of them to consider the Downtown market, where there are still several large blocks of contiguous space.

Among some of the large leasing transactions that closed early in 1998 were: Chase Manhattan Bank's renewal/expansion for 448,517 square feet at 1211 Avenue of the Americas; Ziff-Davis, Inc. for 337,653 square feet at 63 Madison Avenue; Schroder & Co., Inc.'s renewal/expansion for 207,986 square feet at 787 Seventh Avenue; Santander Investment for 198,000 square feet at 1251 Avenue of the Americas; and Sakura Bank, Ltd. for 116,500 square feet at 101 Park Avenue. Later in the year, Debevoise & Plimpton signed a lease for 414,032 square feet at 919 Third Avenue; Donaldson Lufkin & Jenrette committed to 166,926 square feet at 280 Park Avenue; ING Baring Furman Selz leased 160,500 square feet at 230 Park Avenue; Schulte Roth & Zabel LLP committed to 211,411 square feet at 919 Third Avenue; Shereff Friedman signed a lease at 405 Lexington Avenue for 125,000 square feet; and BEA Associates inked a lease for 82,000 square feet at 153 East 53rd Street.

Adding to Midtown's appeal have been several major renovation projects in the area. The nearly complete renovation of Grand Central Terminal, with its new emphasis on upscale retail and food tenants, has generated tremendous interest from office tenants. The planned upgrade to Rockefeller Center's Fifth Avenue retail frontages and underground concourse should help to stimulate added interest to this already premier corporate office location. Meanwhile, renovations at the Chrysler Building are not yet complete, but several leases have already been signed, including deals with Chase Manhattan, Omni Offices and Berlin Shereff Friedman.

Major news on the West Side of Midtown came during the fourth quarter of last year when Morgan Stanley publicly confirmed plans to build a 1.1 million square foot office tower at 745 Seventh Avenue, thus bringing to fruition the long-awaited development of the Rockefeller West site.

It is expected that in 1999, economic growth will slack off as businesses respond to global financial distress in the form of corporate restructurings, layoffs and declining earnings. As a result, leasing will slow somewhat as firms are less certain of the future and become less willing to take additional space. However, the space availabilities created by layoffs in the financial sector will quickly be absorbed by other growth industries such as technology and service firms. Effective rents in Midtown should remain on the rise and vacancy rates will continue to decline, though not at the same brisk pace witnessed in 1998.

COPYRIGHT 1999 Hagedorn Publication
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