2007: a tale of two markets, says NAI Global.

In a tale of two markets, rampant growth and constrained supply propelled New York City's leasing and investment market into uncharted territory during the first half of 2007.

Office rents topped $200 per square foot at the top end of the market and sales transaction in excess of $1 billion became commonplace, according to the 2008 Global Market Report released by NAI Global.

However, the second half of the year saw a rapid drop-offof large investment transactions along with a marked decline in leasing volume as uncertainty gripped the market.

Tenants and investors are approaching 2008 with caution due to ongoing turmoil in the credit markets and uncertainty on Wall Street, according to Andrew Simon, senior managing director of NAI Global's New York City office.

Midtown Manhattan displayed its strength in the face of the disruptions in the financial markets in 2007, finishing the year with effective average rents of $86 per square foot and a vacancy rate of 5.2% for Class A space.

Office rent downtown continued its rise for the 12th consecutive quarter without hesitation. Rents downtown reached $65 per square foot at the top end in 2007, and about $75 per square foot in new buildings. The vacancy rate for Class A space downtown is just slightly higher than Midtown at 5.8%. However, velocity in the market has markedly slowed with fourth quarter absorption the lowest it has been since year-end 2000 when the dot-com bubble burst.

"An uncertain market has caused tenants to delay decisions while contemplating relocation or expansion," noted Simon.

"The dust has not settled in the credit markets, and softness in demand by financial services companies is just being seen in the market. If the credit crisis has a continued effect on Wall Street, the market should begin to soften."

Commercial property markets worldwide enjoyed a strong year in 2007 with slightly declining vacancy rates, rising rents and record sale prices, according to the NAI's 22nd annual Global Market Report. However, the outlook for 2008 is clouded by uncertainty following the mid-year emergence of the sub-prime debt problems, volatile credit markets and record high oil prices.

"Fears of a slowing U.S. economy and the credit crunch are clearly having an effect on investment real estate markets, even though commercial real estate fundamentals remain strong," stated

NAI Global president & chief executive officer Jeffrey M. Finn. "However, we believe the slowdown in activity is only temporary as the credit markets sort themselves out and a new pricing equilibrium is established." NAI Global chief economist Dr. Peter Linneman, Professor of Real Estate at the Wharton School, added, "Some pundits are predicting an imminent recession in the United States and eventually they will be correct as they have been predicting a recession for the past five years. The U.S. economy is too strong, and most companies and consumers are simply too well capitalized for a recession to be triggered by the current capital markets disarray.

"The credit crunch is leaving many domestic investors on the sidelines for the time being, but a weak U.S. dollar and the relative returns to other global real estate markets make U.S. real estate quite attractive to offshore investors."