Market equilibrium is opportunity for creative brokers

Real Estate Weekly, Jan 31, 1996 by Peter Riguardi

Gone are the tremendous work letter and rent concessions that dominated lease negotiations in the early 90's, and yet tenants have enough space options within Midtown, or have the ability to move their businesses elsewhere, so that no one may claim the upper hand in negotiations.

Both sides must be prepared to come to the table ready to deal, and it is here that brokers can skillfully maneuver the market's middle ground to fashion a mutually satisfactory lease agreement.

In the market realities of '96, we are seeing good leasing velocity. Prime space is moving fast: witness the activity at 320 Park Avenue and 1290 Avenue of the Americas. The prime drivers of absorption include foreign banks, investment banks, insurance companies and the entertainment industry.

On the flip side, however, the merger mania among the regional money center banks will slow absorption. Just the Chemical-Chase merger, set to take effect this Spring, will by itself create a great many retail and office vacancies as the nation's newest number one bank consolidates its operations.

Downtown, there are three large blocks of space - at 2 Broadway, 60 Broad Street and 55 Water Street - that are like what New Hampshire or Iowa are to the presidential primaries: as they go, so goes the market. One of the long-term keys to a Downtown renaissance is increasing the residential mix as part of its inevitable transition to a 24-hour, seven-day community. There is no doubt that the Mayor's initiatives are helpful, but the big turnaround will come only when there is employment growth to expand the need for office space.

And while mergers mean less jobs both Downtown and Uptown in the short-term, employment growth in some sectors of the city is being driven by long-term growth in the telecommunications and entertainment areas.

The city also serves as an incubator for technology start-ups. This includes the 'net companies, CD-ROM publishing, software designers and other services, which had no market until the very recent advent of multimedia desktop PCs, the Worldwide Web and high-powered desktop computers. These creative firms find that many of the City's alternative buildings are an excellent place to do business.

One of the most encouraging areas of the market are building sales, which this year indicate that investors are again bullish on Manhattan. Both foreign investors and Wall Street financial firms will continue to be active.

While much has been made about some Japanese companies cashing out of the market, a major trend has emerged among domestic buyers who want their piece of Manhattan. Institutional players and entrepreneurs, some new and some returning after a long hiatus from the market, are actively pursuing a wide variety of properties. And here's a good sign for the new year: lenders are ready to provide purchase capital and the Japanese are coming back!