Content area
Full Text
One year ago, trends in the midtown office market were promising that developer Howard Ronson appeared ready to break ground in 1995 on the first office development since the recession.
Officials at Mr. Ronson's company, HRO International, said they expected to take title to a prime site, at 383 Madison Ave., in the fall of 1994 with scheduled completion in the third quarter of 1996.
HRO officials say they expect to complete the project in April 1997. They blame the delay not on market forces, but the decision by the seller of the site, a partnership controlled by First Boston Corp., to postpone the closing on the sale of the property until June of this year.
Larry J. Wyman, HRO principal, says the market is more conducive for a new development than it was one year ago. "With every lease that gets signed in first-class space, the market gets tighter."
But many real estate professionals are not as optimistic. They warn that even by 1997 the market will not be able to support the rents of more $50 a square foot that Mr. Ronson is going to need at 383 Madison. They note that increasing uncertainty caused by a nationwide economic slowdown has made tenants more cautious about making lease commitments. Companies that are restructuring and relocating are returning large new blocks of space, brokers say.
"I'm not convinced there's enough depth to the $50-plus market to justify building a new building," says Barry Gosin, chief executive of Newmark & Co.
'95 not like '94
Despite some encouraging trends in the midtown market, happy days are not here again. While leasing activity is healthy, brokers do not feel tenants will rent as much space this year as last year.
Although landlords have not had to give up any of the bargaining advantages they've been able to eke out of the recovering market, they are having a difficult time increasing prices further.
Some brokers say they recognize 1994 was a banner year--with tenants leasing more than 16 million square feet--partly because businesses with leases expiring in future years made deals early to lock in low rents. Essentially the market borrowed from future demand.
Moreover, rents are no longer low enough to give tenants a huge...