Panel optimistic about RE market recovery

Real Estate Weekly, July 9, 2003 by Barbara Nelson

Hoping that recent economic trends will continue, industry professionals are being cautiously optimistic about the real estate market.

In a June 24 roundtable discussion sponsored by Real Estate Weekly, five professionals gave their mid-year review and forecast of the market. Most said, although the real estate market is better than it was this time last year, there is no reason to celebrate yet.

"From the landlord side, I would say that the statistics that we have are showing that there is now a little bit of renewed optimism," said Scott Gamber, executive managing editor, Insignia/ ESQ. "There are leases being done. There are tenants that are making decisions, 1 andlords are making deals. ... From the broker's side or from the agents that represent landlords, I'm not sure if it is the same optimism. I don't think they feel as if they are as busy as they should be, or would be in a good year."

The panel was moderated by REW's associate publisher, Albin Zezula. The participants were Gamber, Lenore Janis, president of Professional Women in Construction; David Lebenstein, executive vice president of Time Equities Inc.; Beatrice Sibblies, assistant vice president of development program and economics for the Lower Manhattan Development Corportation; and Brad Singer, president and COO of HRH construction.

"I would say that the activity level is reminiscent of the early 90's, although not quite as bad," said Lebenstein. "There are a lot less space showings and a lot less people out on the market and a lot less deals being made. There is more sales activity, interestingly enough, than leasing activity. In fact, there is a mismatch between the lease and sales market."

With interest rates lower than they have been since 1958, leasing isn't quite as desirable as owning.

"What is happening is that there is plenty of reasonably priced space to lease that is available," Lebenstein said. "I work with a lot of institutions and non-profits and they would like to own and there is virtually no space. You can build it. You can have a new development. But, in terms of space existing, it is almost impossible to find."

Even with low interests rates and the stock market making a slow return, panelists didn't see a complete recovery for months if not years to come.

"I think the highs and lows are not related to any economic indicators," Lebenstein said. "I think we have a ways to go. The low interest-rate environment is keeping everything artificially stimulated. There's an old saying if it's too good to be true; it is. We have a rocky road to hoe."

Sibblies agreed with Lebenstein.

"With the amount of space available, I see a very modest improvement," Sibblies said. "We are seeing major tenants take space in lower Manhattan. While it may take 18 months to turn around, the financial market is lagging."

What happens on Wall Street has a ripple affect on many businesses.

"As the market goes, so goes construction," Janis said. "I believe in the cyclical process. The Bible says seven years of plenty and seven years of famine. We went through it in the early 90's."

"I think the economy in New York City is dependent on the stock market, accounting firms, law firms derive business from it," Gamber said. "Eventually the market will go up, but people will not be making the money they made before."

In response to the recent news of the Associated Press signing a 300,000 SF-lease, the panelists said they hope the deal sparks enthusiasm in other companies.

"I think what it does is to make tenants think 'some one else is making a commitment what about us?'" Gamber said. "Right now I think there is 30 contiguous spaces larger than 100,000 SF. There are a lot of spaces in Midtown, large block spaces. I think if you see a couple of those deals happen, you would have a domino affect. I think it all helps to make a lot more positive atmosphere."

"It's certainly a lot better than losing them to another market or to another city," Lebenstein said. "I think it's a positive sign, but I think you need a lot more transactions. It's still relatively small."

The market's outlook has many factors, they said.

"The future has a lot to do with how the war is perceived," Singer said. "I think terrorism and tourism is a major factor in the city. Hotels will start to come back as tourism comes back."

"A lot of activities will take seven years to see fruition," Sibblies said. "Over the next year, I think what you are going to see is fruits o f long term planning. Once you see the tangible results of construction there will be a psychological shift."

In a tenant's market, landlords need to take a pro-active approach.

"I think we are in for some difficult times for the next 6, 12 to 18 months," Gamber said. "I think if I was a landlord, I would take the smart deal. If you have some substantial vacancies, you need to get some action on those buildings. You need to do something creative."