Vitality of NY market will continue in '98

Real Estate Weekly, Jan 28, 1998 by Raymond T. O'Keefe

It's a great time for business in New York: crime is down, Wall Street is doing well, hotel occupancy is way up and there's little fear of inflation.

The real estate market is characterized by a dwindling supply of office space and a steady stream of investment capital fueling purchases and renovations. And the appetite of real estate investment trusts (REITs), a major source of the new investment capital, isn't expected to be abated in the coming year. Quality development projects should continue throughout the city, contributing to the overall improving economy and job growth.

Availability of office space for lease in Midtown has dropped from about 14 percent in 1995 to about 11 percent in 1997. However, for investors, hotel projects continue to hold the greatest interest. Currently there are about 19 major hotel projects either under construction or in the planning stages in Manhattan.

There are a multitude of potential or announced development projects that are expected to support continuation of the boom real estate market in 1998.

A developer is expected to be named by the city in 1998 for the Coliseum property on 59th Street at Columbus Circle. That project will help complete the revitalization of the Midtown area on the West Side south to Times Square. The announcement will also give other developers the impetus to go ahead with projects lying between the two landmark anchors.

Residential development should dominate the area north of 50th Street to 59th Street along the Eighth Avenue corridor. The area along Eighth Avenue from 42nd Street up to 50th Street is expected to be slated for office development.

Throughout the city, hotels development projects hold the greatest interest. Despite an average nightly room rate of $200, there is a shortage of rooms in Manhattan because of increased business travel and tourism.

Developers are flocking to new hotel projects. An investment group, which includes the Vornado Realty Trust and Planet Hollywood, has purchased the 1,705-room Hotel Pennsylvania, across the street from Madison Square Garden, and plans to convert it into a sports-theme hotel and entertainment complex.

Downtown, a premier hotel with a major ballroom at the landmark 55 Wall Street building is being developed by the Ciprianis restaurant family. This is expected to add a new dimension to the district as a place for recreation, and more than just a 9-to-5 financial center. Additional hotel conversions have been announced at 40 Wall Street and 17 Battery Place.

Also in the Downtown area, the trend of office-to-apartment conversions should continue as a significant component of the market activity in that sector. The WorldWide Holdings apartment conversion project at 71 Broadway next to Trinity Church has met with great success, as has 45 Wall Street (Rockrose), 56 Beaver Street (Time Equities), 25 Broad Street (Crescent Heights) and 21 West Street (Rose Associates). And at Battery Park City, three new residential buildings, a hotel with a multiplex cinema and a school are under construction.

Office space is getting more scarce every day in Midtown, and that situation, coupled with steady lending rates, may encourage developers to reassess speculative new construction projects. But at the very least, expect to see more renovation projects as leasing rates rise.

As office space in Midtown becomes more expensive and inventory decreases, companies who keep their headquarters in Manhattan may be compelled to look for less expensive options for their support operations in Brooklyn and Queens, or north to Westchester and Fairfield counties.

The waterfront of New Jersey is being considered for some speculative building for these operations because of land availability. But Manhattan rents may have to increase a few notches more before any new construction actually happens.

Lower Midtown (Tribeca, Soho, Greenwich Village and Chelsea) continues to be a strong residential area, and during the last two years, more restaurants, clubs and galleries have opened, which contribute to the overall improvement of the city's quality of life.

All these factors coming together, including a city government committed to an improved city, paint a picture of another prosperous year in 1998.