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NEW YORK CITY-With limited new construction coming online in New York City, the office market will continue to tighten during the next 14 months, according to CB Richard Ellis’ John Powers, co-chairman of the firm’s New York Tri-State Region. Powers provided an overview of the current office market at CB Richard Ellis’ 21st Annual Market Forecast Breakfast Oct. 19, where Tony Blair, among others, were in attendance.

Pricing will rise steadily throughout the market–although not at the 40% rate experienced over the last year and a half–and the spread between the average asking rent in Midtown and Downtown will narrow.

According to Powers, a dwindling supply of space and lack of large available blocks has contributed to record-high pricing and shrinking availability rates throughout Manhattan. Based on those trends, he offered the following predictions for year-end 2008 conditions in Manhattan’s three real estate markets: Midtown’s 2008 leasing activity will total 12 million sf. Availability will inch down further to 6.4% and average pricing will reach a record high of $87 per sf. Concession time will be seven months and tenant improvements will be $42; though Midtown South leasing activity will fall to four million sf for full-year 2008, the availability rate will dip to 7.3% and rents will increase to $54 per sf. Concession time will be six months, and tenant improvements will be $40; unlike in Midtown and Midtown South, Downtown will see robust leasing in 2008, with 5.5 million sf of activity. Downtown’s availability rate will dip below 8%, falling to 7.5% at year’s end, and pricing will soar past the $50-per-sf level to $53 per sf. Concession time will be six months, and tenant improvements will be $40.

According to Powers, Midtown has three new buildings coming online between early 2009 and late 2010–510 Madison Ave., which will add 300,000 sf; and 250 W. 55th St. and 11 Times Square, which will add a total of two million sf on Eighth Avenue. He predicted that both 250 W. 55th St. and 11 Times Square would be significantly leased up in 12 months at historic rent levels for new construction, and also noted that despite these additions, there is only 0.5% growth per annum to add through 2010 of the total office stock in Midtown, compared with the 2.5% growth that has been characteristic of the supply side since 1980.

In Midtown South, Alexandria Real Estate Equities has commenced work on its 725,000-sf bioscience complex on the East River, and the Hotel Pennsylvania continues to be one of the most attractive sites in Manhattan for large financial service users, Powers noted. Downtown will see an additional 800,000 sf of space at 375 Pearl St., and Goldman Sachs’ 2009 move into its new headquarters building is expected to free up several larger blocks of space Downtown. However, this new supply will add only 0.6% per annum to the Manhattan market between 2008 and 2010.

In the investment market, Powers predicted a steady recovery over the next 18 months of the recent decline in office valuations.

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