Has the balance of power changed? Is the great tenant market of the 90's in midtown office buildings finally coming to an end, with the balance of power shifting to landlords, after a few years of steady economic recovery with virtually no new construction?

To some the answer is an unequivocal yes. "I think it has shifted from the tenant side to the owner side," said James S. Meiskin, the President of Plymouth Partners, Ltd., a brokerage firm specializing in tenant representation.

He said the reason was that vacancy rates - particularly in prime midtown space - were declining as expanding companies occupy the available space.

Others say the shift in the upper hand is a peculiarity of the New York market, which is focused on Manhattan. "New York is the only market I know of where it becomes a landlord's market while there are double-digit vacancy rates," said Peter Friedman President of the Friedman Realty Group. "In New York, when the vacancy rate goes below 12 percent, it's a landlord's market."

Although the overall vacancy rate may still be in double digits, space in the most desirable buildings has become scarce, according to RE/Locate, a real estate research firm. It reports that vacancies in the 180 class A buildings between 34th and 61st Streets is just under 8 percent. For an elite group of 30 buildings built after 1980, the rate is just over 6 percent.

Asking rents have not climbed sharply, at least not yet, but brokers say the shrinking concession packages being offered by building owners to entice tenants are the best indicators of a changing market.

"There has been a seismic shift from tenant to landlord," said Orna Shulman, Executive Vice President of the Intertech Corporation, which bought the office tower at 1500 Broadway at 43rd Street in September 1995. Because of the reduction in concession packages, she said, effective rents are 15 to 20 percent higher than the company's expectations at the time of purchase.

Others say the situation, while it has generally changed in favor of building owners, is more complex than one side or the other having the clear upper hand.

"I am not about to raise a flag and claim absolute victory," said Bruce Mosler, President of The Galbreath Company. "It seems to me that the market is bifurcated. If you are looking for blocks of space under 50,000 square feet, there are a lot of choices. But if you are looking for over 300,000 square feet, it's very tough."
Mr. Mosler cautioned that mergers, such as the combination of Morgan Stanley and Dean Witter, will continue to have real estate implications, as staffs are trimmed and space becomes available. And as new buildings - such as the Durst Organization's 1.6 million-square foot building now under construction at what will be 4 Times Square - fill up, the space being vacated may be hard to fill.

"New product is sexy and fills up quickly," he said. "But if 4 Times Square and other new buildings go up, there may be difficulty in backfilling the older space."

To Mary Ann Tighe, a broker at Insignia/Edward S. Gordon Company, the market is more tenant-specific than anything else. "If the tenant is somebody who had to be in Midtown or Midtown South, needs 50,000 square feet or more space, has a high level of technical requirements and needs floor plates of 25,000 square feet, that tenant is in a landlord's market."

More generally, Ms. Tighe said, landlords have more options today than in the early part of the decade, when vast amount of space stood empty and rents were falling. "You can feel it in the market," she said. "Today there is always a deal in front of you or right behind you. If you decide to play hardball with an issue, the landlord has alternatives."

"There is no question that landlords are negotiating with multiple tenants in the better locations," said Andrew H. Roos, Executive Vice President of Williams Real Estate Company. "But there are still some good values out there for tenants who are willing to compromise."

In addition, Ms. Tighe said, the era of tenants sending out requests for proposals from building owners and managers is over. "Today," she said, "you have to make an offer."

Mitchell Steir, an executive vice president of Julien J. Studley, acknowledges that tenants have less leverage than a few years ago, but argues that this is not a completely bad development. "My opinion is that we are in a 'fair play' market, where landlords have the ability to make a living," he said.

>He said that while free rent and other concessions were smaller than they were a few years ago, they are larger than the last real estate boom. "Concession packages are still 150 to 200 percent of what they were 10 years ago," he said.

And while landlords have more options than they had when space was going begging, that has not translated into arrogance, according to Mr. Steir. "We don't see situations where the landlord says to a tenant, 'This is my renewal deal - take it or leave it,'" he said. "There is still a strong desire to keep existing tenants to avoid the cost of getting new tenants."

But some have encountered signs that indicate some owners foresee much higher rent levels on the horizon. "We represent some tenants who are subleasing in the General Motors Building, Mr. Meiskin said. "The sublease is due in one year and the tenants are interested in renewing for 10 years at a rental rate of $50 to $55 a square foot. But the owners are not interested in renewing, apparently because they think they can get $70 a square foot in a year."
Renewing existing tenants means the space would not have to be remodeled and there would be no down period while construction was taking place and no rent was being paid, Mr. Meiskin observed. "This is a perfect example of how the market has changed."
Patrick J. Brennan, the rental agent for the building, said the situation was more complicated than Mr. Meiskin described, because the space is under lease to a third party. He declined to comment further.

Some market participants observe that the increased tendency for properties to be financed by equity and debt raised on Wall Street is changing some of the rules of the game. Even if the vacancy rates decline, they say, a tenant with strong credit will still be able to engineer a favorable deal.

"Credit is king and the credit tenant is in control," said Joseph A. Farkas, Manager of the New York office of The Koll Organization. "Buildings are being taken through securities markets where the rating agencies are critical. And one of the things they look at is the credit of the tenants involved."

Mr. Farkas cited the example of the contest between the Furhman Selz brokerage concern and Xerox Corporation for space in 280 Park Avenue, the Bankers Trust Building. "They both battled over that space and Xerox got it because of its credit," Mr. Farkas said, citing Xerox's enormously greater size. "This type of tenant will keep the market from being completely dominated by landlords."

Whenever vacancy rates decline and effective rents begin rising, talk of new construction begins. Douglas Durst, whose building at 4 Times Square is 87 percent rented even though excavation is not yet complete, said he perceived "large pent-up demands for large blocks of high technology space."

He said the rapid leasing of 4 Times Square "was surprising to us" and predicted that "future development will take place on the large sites that are available," such as the half block on Madison Avenue between 46th and 47th Streets, the block on Seventh Avenue between 49th and 50th Streets and additional sites in the Times Square area. "The requirement is for large footprints," he said.

"We are flirting with the viability of new construction," said Mr. Friedman of Friedman Realty. "Some people say if we are within 10 percent of the rentals to justify new construction, it is time to buy dirt and get going, because it will take two or three years to get the project off the ground."

>He said the availability of financing, much of it from foreign sources seeking a stable investment climate, would stoke new development, even if traditional financing sources, like banks and insurance companies, stay on the sidelines. "Because of this flight capital there is a tremendous availability of funds to finance buildings in New York and its suburbs," he said.