'98 was a banner year, and '99 could be better.

Despite a fourth quarter increase in vacancy rates, 1998 turned out to be a banner year in New York's commercial real estate marketplace, with the volume of transactions surpassing 1997's level in both size and number.

So reports The Barometer, Colliers ABR, Inc.'s quarterly report analyzing emerging trends in Manhattan's office market.

While overall numbers for the past year were encouraging, the Report's fourth quarter edition took note of current differences between the Midtown and Downtown districts. By the end of the year, the Downtown Class A vacancy rate had dropped to 7.3 percent from 9.9 percent in December 1997, while Midtown's 1998 vacancy rate remained unchanged at 8.5 percent.

Still, says The Barometer, the reality is that "both markets are in remarkable good shape given the turbulence on Wall Street in the third quarter and the accompanying slowdown in real estate investment." In fact, it views the steady increase in asking rents across most of Manhattan during the fourth quarter as an indication of "resounding confidence" in the marketplace - not an outrageous conclusion - during a year in which the largest private sector job increase in the history of New York's labor statistics (99,400 new jobs) was recorded.

Here are some other key findings from the Report:

* The Manhattan Class A vacancy was 8 percent in December 1998, up from 7.1 percent in September. The Manhattan Class A average asking rent increased to $44.79 per square foot (psf) in December, from $43.70 psf in September, a 2.5 percent increase;

* Close to two-thirds of the 1.83 million square feet that came on the market in the fourth quarter came from sublet listings in Midtown. As a result, the Midtown Class A vacancy rate climbed to 8.5 percent in December, from 7.2 percent in September;

* Despite the rise in vacancy, Midtown's Class A average asking rent increased to $48.27 psf in December from $47.06 psf in September, a 2.6 percent increase;

* The Downtown Class A vacancy rate increased slightly to 7.3 percent, from 7.1 percent in September. At the same time, its average asking rent decreased to $35.49 psf, from $35.85 psf.

* The overall vacancy rate in Manhattan was 8.4 percent in December, up from 8 percent in September. The average asking rent increased 2.1 percent to $35.50 psf.

As far as the rise in vacancy rates during the fourth quarter was concerned, The Barometer noted that the Midtown market was hit with a number of large sublet blocks late in the year. While most of the companies putting their space on the market were financial firms with some international affiliations, very few of these offerings were a result of Wall Street's poor performance during the fall. Most of the sublet listings were the result of consolidations, as well as planned relocations. A number of direct blocks of space came onto the market as well.

Downtown's vacancy increase was due to several new sublet blocks that came onto the market. The availability in Downtown throughout most of 1998 was dominated by a few large blocks of space, most notably at 125 Broad, 60 Broad, 140 Broadway, 233 Broadway and 20 Exchange Place.

Can things get better in 1999? It's possible, according to The Barometer, which notes that a number of large tenants are still in the market for more space; Wall Street has bounced back entirely from its tense days in September; and even the CMBS market has started to re-emerge from its long six-month nap. In addition, Wall Street's enchantment with Internet and new media-related companies bodes well for the future of New York, as more of these firms potentially invest their IPO money in the City.

In conclusion, The Barometer says 1999 will continue to be an exciting time to do business in New York City. The added space in the fourth quarter did ease market pressure that had been building throughout the year, but did not create a market turnaround. Leasing activity will undoubtedly slow in 1999, but vacancy rates should hold steady between 7 and 8 percent.