2Q sees fewer leases, higher rents.

New York brokers may want to pretend that it's just the summer, but the market reports speak for themselves.

According to most research departments, in the first two quarters of the year, both prices and transaction volumes have been negatively, if slightly, affected by the slowing economy and it's still unclear what is going to happen in the next few months. The bad news is that we might be in for another six months of slow business. The good news is that, according to most experts, it won't get much worse than this.

"I don't think the market, based upon economics, is going to worsen," says Joyce Geiger, of Insignia/ ESG. "The slowdown might not be short, but we are bouncing along the bottom right now."

According to Insignia's figures, the amount of available space in Manhattan has increased somewhat, but the asking rents are holding steady, with $59.87 per SF in Midtown, $43.27 in Downtown, and $44.22 in Midtown South.

"To date, the greatest impact has been seen in the Midtown South market area, which was also the greatest recipient of the benefits of the recent boom," Geiger explains. "But the Downtown has actually been quite resilient because much of it is composed of larger, stronger, more traditional tenants."

Both Insignia and Newmark & Company Real Estate noticed rent increases in the Plaza District and on Sixth Ave., however, with the average asking price there rising to $76.39 per SF.

"The strongest am still the submarkets with the highest quality properties - Park Ave., Madison Ave., what is known as the Plaza District," says a director of research analysis with Cushman & Wakefield. "The weaker markets am in the fringe areas and in Midtown South."

She also said, however, that it's important to remember that asking rents and actual rents are not the same thing. "We track asking rents in research and those have not come down too much -- maybe around 5%," she said. "But if you actually look at the taking terms of the deals and at net effectives, we are seeing declines more in the area of 10% to 15%. The landlords are just not ready to come down yet."

Robert Knakal, whose company tracks sales data, sees the same trends when it comes to sales. According to Massey Knakal's first quarter Market Trends report, the sales prices have increased by 6.74% this year, despite a 36.6% decrease in volume. "The sellers still think that it's year 2000, when in fact, it's 2001. Are they still able to get people interested in the property? Yes. Will the transactions actually take place at such prices? That's doubtful."

Knakal expects, however, that the prices will have to decrease eventually. When and by how much will depend in large part on the fluctuations in the Dow Jones index and Federal Reserve interest rates.

"The Dow Jones affects the market psychologically, more than anything else," he says. "The fluctuations create a lot of uncertainty and it may stop a certain percentage of participants from making decisions right know. Depending on the situation, it can knock a certain segment of the market out all together."

Geiger, however, think that it's more of a vicious cycle. "It's a chicken and egg situation," she says. "What you are finding is that with some of the investors in the financial firms you will see less leasing activity because corporate profits are down. Until we do see improvement in the Dow, I don't think you are going to see a lot of corporate activity."

As to the interest cuts, opinions vary wildly. "I don't think they had a direct impact yet at this point," says the source at Cushman & Wakefield. "It's probably going to be another six months before they to take effect. But what they do confirm is that we are in a slowdown, so I think the perception is pretty much going to keep the market stagnant and the tenants that are waiting right now are going to keep waiting."

Knakal thinks that all will depend on whether Alan Greenspan decides to cut long-term interest rates. "He is trying to stimulate the economy by dropping the short-term rates and it is having a greater effect on the consumer market, than on the real estate market. It is certainly helping that the rates are coming down, but it's the long-term interest rates that have a significant effect on the real estate market."

Geiger is much more optimistic. "Some think that without the cuts, our situation would be much more dismal," she says. "But Greenspan is expecting to see these benefits begin to really surface in a measurable way in 2002. It's his story and we are sticking to it."