Manhattan seems to be bottoming out

Real Estate Weekly, July 7, 1993 by Daniel E. North

There was considerable optimism about the outlook for the New York office leasing market as 1993 began, reflecting expectations that the new President and new Congress were going to be decisive about solving the county's economic and deficit problems. January's optimism became June's uncertainty, however, when the administration and the Congress had still failed to agree upon a program. Nonetheless, large amounts of space had been rented in 1992 particularly at the end of the year, and the momentum continued in the first half of 1993. While economic indicators keep giving mixed signals, there seems to be a bias toward recovery, with no suggestion of a further dip into recession. In addition, both Congress and the president seem to be reacting to mounting pressure to reach agreement on a budget that will deal realistically with the nation's finances.

Bottoming Out

At the same time, the Manhattan office market seems finally to be bottoming out. The available selection of larger space units is becoming very limited. For the first time in several years, new leases and expanding renewals are beginning to draw down the great total of surplus space hanging over the market. The footage reduced is still too small a proportion of the total to affect demand, but the trend is in the right direction.

While bottoming out is always an encouraging sign when leasing is in a slump, the timing and strength of any recovery now will depend upon how quickly surplus space is absorbed. In turn, the rate of absorption will be governed by how quickly Washington takes the kind of action necessary to get the economy really moving.

Meanwhile, owners and managers will have to continue to deal with the same strong tenants' market they have been facing. It's not a time to wait passively for a strong recovery--those who do are not likely to be ready when it does arrive. Nor is it a time to rest on past laurels. Tenants want more from buildings in terms of services, facilities, amenities--and location--in the 90's.

At One Penn Plaza, everyone owners, management, staff--is striving to meet these challenges. More than two years ago, with the full backing and participation of our owners, MidCity Associates--a partnership of Harry B. Helmsley, Peter L. Malkin and Metropolitan Life Insurance Company--and the strong management support of Helmsley Spear, Inc, we streamlined our negotiating and leasing procedures to "make deals happen." We also introduced a variety of incentives for brokers to take part in this campaign, including payment of full commissions when leases were signed. Response of tenants with renewals coming up, new tenants and brokers has been outstanding. Through the campaign, over the past 28 months, we have signed 141 tenants to leases for 800,000 square feet of space, with aggregate rentals in excess of $200 million, and paid $6.5 million in commissions to brokers.

Among those renewing were Stone & Webster Engineering Corporation and Parsons Brinckerhoff. Both international engineering firms have been in the building for 20 years and each now occupies more than 150,000 square feet. Parsons Brinckerhoff, whose operations have been based in New York City since the company was rounded 108 years ago, doubled its space in the building which will continue to serve as its world headquarters.

Stone & Webster and Parsons Brinckerhoff, who had considered many relocation options elsewhere before closing their deals, said One Penn Plaza's new $25 million capital improvements program had strongly influenced their decision to remain in the building--and New York City. The program continues to be a very positive factor in all our negotiations.

The improvements are designed to transform the building into a "One Penn Plaza for the 90's." Both interiors and exteriors will be revitalized, including main lobbies public corridors, elevators and elevator lobbies, entrances and outdoor plazas. Enhanced heating/air-ccnditioning and electrical system will be state-of-the-art to serve the growing needs of this decade. Some aspects of the programs which is expected to be completed over the next two years, have already beRun.

Despite the recession and the long period of economic uncertainty it's fostered, there are probably more major, diversified efforts to improve our area now under way, or in planning stages, than at any time since McKim, Mead and White's original Pennsylvania Station opened in 1910. The 34th Street Partnership, funded by a special assessment on commercial property in the business improvement district it serves began supplementing city services in the district's 28 blocks, roughly centered about Penn Station, on Jan. 1, 1992.

By July, the partnership was being highly praised for the success of its efforts to reduce crime, improve sanitation and create an attractive environment in the area that would help the thousands of delegates, media people and others attending the Democratic National Convention enjoy the city's attraction. Security, sanitation and other goals achieved then have been consistently maintained and enlarged ever since.