They cannot agree on how much space still languishes empty, or on what the average rents are. But on some things, New York's commercial real-estate brokers and building owners are unanimous: Buildings are filling up. Landlords are getting more from tenants and giving them less. Some companies are even buying buildings again. All told, brokers and landlords say, the real-estate recession is ending.
"If February's numbers are an indication of what the rest of 1994 will look like, the New York real-estate market is in for a sustained period of recovery," said Barry Gosin, chief executive officer of Newmark & Company Real Estate.
Peter L. Malkin, a lawyer who is part owner of the Empire State Building and several other Manhattan properties, agreed. "We have definitely turned the corner," he said.
Average midtown rents, which have plunged from about $40 a square foot per year five years ago to as little as half that amount now, have stopped their slide. The Edward S. Gordon Company, a large brokerage company, says average asking rents -- the rents at which landlords market space, but which can usually be negotiated downward -- are $31.16 a square foot a year now, and brokers and landlords say they are inching up even more.
Concession packages -- months of free rent and landlord contributions toward the cost of customizing a tenant's space -- are tightening, too.
Mr. Malkin says the value of the concessions he has had to offer has declined by one-third to one-half over the last half year or so. Brokers report that all landlords are increasingly tightfisted.
"For the first time in four years, tenants can expect to pay more for the same space tomorrow than they will same space tomorrow than they will today," said Jerry L. Cohen, a vice chairman of Cushman & Wakefield, another large real-estate brokerage firm.
Although they vary from source to source, the numbers are uniformly indicating that vacant office space is diminishing. Newmark says that in February the empty space in the most expensive part of town -- from Third Avenue to Fifth Avenue, from 42d Street to 57th Street -- dropped to 14 percent, the first time it has fallen below 15 percent in three years.
Cushman & Wakefield puts the vacancy rate for midtown's best buildings, regardless of neighborhood, at 14.8 percent at the end of February, down from 16.3 percent about a year ago. Edward S. Gordon is just slightly more conservative, citing a 15 percent midtown vacancy rate.
All those numbers are still way above the 8 percent vacancy rate that real-estate experts have traditionally considered a sign of a healthy market, but it is a trend heading in a direction that the brokers and landlords find heartening.
Even Second-Rate Space And the figures include empty space in second-rate buildings, as well as oddly configured spaces. Large blocks of space -- those of over 100,000 square feet or so -- in the best buildings have grown exceedingly scarce, and tenants who need them will pay a premium to get them.
"A couple years ago we figured space supply and demand would reach equilibrium by 1997," said Stephen B. Siegel, Edward S. Gordon's president. "Now we think it'll happen by the end of next year."
New York is not alone in recovery. Throughout the country, with the possible exception of Southern California, low interest rates, the scarcity of new construction and a general sense of a strengthening economy have translated into a reviving commercial real-estate market.
Still, Julien J. Studley Inc., a national real-estate brokerage company, reported that New York, San Francisco and the District of Columbia were the only major United States markets where tenant effective rental rates -- the rents paid per square foot, subtracting the value of the concessions -- increased last year. Julien J. Studley, the company's owner, says that particularly in New York, tenants are clamoring to get leases signed before rents go up again.
"One of the clearest signs of recovery in New York is that the pressure to close deals isn't from the building owners anymore," Mr. Studley said.
Not all the news has been good for the real-estate industry in the city. The downtown financial district is awash in space. And those developers who had highly publicized fiscal troubles -- Olympia & York is probably the most well known, but there are others -- have found it almost impossible to get back on their feet. Brokers, afraid that their commissions will not be paid, and tenants, afraid the buildings will not be properly maintained, still shun their properties, even when they have managed to keep them out of bankruptcy.
New York's emerging real-estate recovery represents a confluence of local and national factors. The generally strengthening economy has given many corporate tenants new confidence, and thus a greater willingness to expand. And, since development of new commercial space has been at a virtual standstill over the last four years, those corporations have been filling up existing buildings.
Shifting to a Service Economy
"Not only are we seeing fewer tenant bankruptcies, but existing tenants are taking more space," said Stephen Green, chairman of S.L. Green Real Estate, who says that the 20 Manhattan office buildings his company owns or manages are about 96 percent occupied.
The shift to a service economy in New York has also largely ameliorated the impact of the flight of corporations elsewhere. Over the last 15 years, numerous corporations, including Union Carbide, American Airlines and J.C. Penney, have left New York for Texas, Connecticut and other states.
To make matters worse, many corporations have tried to streamline their decision-making processes by eliminating several layers of management jobs -- exactly the type of headquarters jobs that have traditionally been situated in New York. Even when the economy picks up, few management experts expect those jobs to be restored.
But many of Manhattan's vacant corporate buildings have filled up nonetheless. Avenue of the Americas from 42d Street to 59th Street, once called Corporate Corridor because of the high concentration of corporate headquarters, has turned into Barrister Boulevard as law firms have taken over the empty corporate space.
Banks and financial services companies, many of which have come back in better shape than they were before the 1987 stock market crash, have also moved to midtown. Morgan Stanley, Kidder Peabody, Bear Stearns and Mastercard have all bought or rented huge chunks of space.
A Return to Speculation
Speculative money is also coming back to the market. The British developer Howard Ronson recently agreed to buy and expects to assume ownership in September of 383 Madison Avenue, the obsolete building between 46th and 47th Streets that once housed the Manhattan Savings Bank and the advertising agency B.B.D.O., and that has been vacant for a decade. Mr. Ronson plans a new office building on the site. He refused to discuss details, but brokers who know him say he does not have specific tenants in mind.
Corporate tenants are also predicting a space squeeze, and building sales are up. In the last few years, Morgan Stanley paid $176 million for 1585 Broadway, a 41-story building near 47th Street; Bertelsmann A.G. paid $119 million for 1540 Broadway, a 44-story building a few blocks south, and Mutual of America paid $130 million for 320 Park Avenue, a 34-story building near 50th Street.
Thomas F. Pergola, a Chemical Bank vice president who handles financing of owner-occupied buildings, said Chemical Bank closed some $130 million worth of owner-occupied transactions last year, up from $110 million in 1992. But more significant is the fact that he entered this year with more than $300 million in financing deals in the pipeline -- the first time the level of transactions in progress broke $300 million since the end of 1988, just before the real-estate recession hit.
