Although sluggish, Manhattan market looks strong compared to other cities.

Despite its economic woes, corporate layoffs, and the lingering effects of 9/11, which prompted many companies to postpone commitments or scale back real estate requirements in 2002, the Manhattan office market continues to exhibit strength relative to the rest of the nation.

Availability in Manhattan reached a six-year high at 12.3% at year-end 2002. However, availability has risen just 18% over 1997 levels; other major CBDs across the nation have averaged a 32% increase over the same period. Despite the slowdown, average asking rents are 48% higher than in 1997. Across the nation, average rents are just 10% above 1997 levels.

Still, the events of 2002 did affect local market conditions, prompting a noticeable drop-off in tenant demand. For Midtown, Downtown and Midtown South combined, leasing activity totaled 18.80 million SF - down 32% from 27.52 million SF in 2001. In Midtown, less than 10 million SF was leased for the first time in more than a decade, declining 37% from 2001 to 9.56 million SF.

Leasing comparisons with 2001 are somewhat distorted by the flurry of activity induced in the fourth quarter by tenants displaced from the Downtown market. Downtown leasing for 2002, however, outstripped the year-earlier pace for most of 2002 and ended the year off only 11% at 5.56 million SF. The falloff was more severe in Midtown South, where year-over-year activity fell by 39%.

Availability increased across the board. Certain submarkets saw sizable increases, including Chelsea (3.5 percentage points), Flatiron (4.4 points) and Hudson Square/Tribeca (4 points) in Midtown South and the beleaguered World Financial Center in Downtown (18.7 points). Access to this complex was cut off for most of the first half of the year as structural damage was repaired and the neighboring World Trade Center site was cleared.

Average asking rents remained relatively stable throughout 2002, although concessions packages - including free rent and tenant improvement allowances - have been augmented substantially, estimates Joseph R. Harbert, chief operating officer in the New York Metro Region for Insignia/ESG. In addition, the spread between asking and taking rents has widened. Prime buildings in central locations still garner premium rents, but Harbert calculates that taking rents overall have declined by at least 15% in the past year.

"Despite our many challenges in 2002, New York remains the best performing market in the nation," asserts Harbert. "Sublease space is the main factor that pushed Manhattan's office market above equilibrium. The city shed more than 70,000 jobs last year, and until companies begin hiring again in earnest, lackluster leasing will prevail and sublease space will continue to be a drag on the supply side market."

According to Insignia/ESG's Yearend 2002 "i on the market" report for Midtown: Leasing activity in Midtown for 2002 totaled 9.56 million SF, a decline of 37% from the 15.26 million SF leased in 2001. Midtown's top performing submarkets for the year were Grand Central (its largest submarket, with 2.18 million SF leased), Park Avenue (1.69 million), Sixth/Rock Center (1.4 million) and Times Square South (1.16 million). Negative net absorption decreased to 5.40 million SF overall from 8.18 million SF in 2001. The Plaza District saw the greatest turnaround and was the only Midtown submarket to finish the year in the black with 240,000 SF of positive net absorption. Five of Midtown's eight submarkets posted double-digit availability rates, with the highest rate in Grand Central at 14.8%. Times Square/West Side had the lowest availability at 6.5%. Average asking rents declined just 10% overall to $52.91 per SF in 2002 from $58.90 per SF in 2001. The tony Plaza District maintained the highest asking prices at $70.49 per SF, down 12% for the year, whereas Times Square South had the lowest at $36.37 per SF, down 7%.

According to Insignia/ESG's December 2002 "i on the market" report for Downtown: Leasing activity totaling 5.56 million SF in Downtown in 2002 was just 11% less than 6.24 million SF leased in 2001. Not surprisingly, the Financial District accounted for 4.60 million SF (83%) of that activity, similar to 2001. When considered in terms of age, however, more space was leased in primary pre-war buildings (2 million SF) than in any other age category in 2002. In 2001, post-1980 buildings saw most of the activity (2.83 million SF). Even though Downtown was faced with considerable obstacles this past year, the market's availability rate increased just 2.5 percentage points to 14.4% - almost entirely a result of the World Financial Center submarket's woes. Post-1980 buildings, which are mostly located in the World Financial Center, recorded 17.5% availability, the highest rate by age. Although average asking rents decreased by 14% to $35.59 per SF in 2002, the significant "Liberty Zone" incentives put in place this pa st year were a primary lure for cost-conscious and civic-minded tenants.

According to Insignia/ESG's December 2002 "i on the market" report for Midtown South: With its resurgence squarely in the past, Midtown South saw leasing activity decline by 39% in 2002 to just 3.68 million SF - its lowest tally since the mid-1990's. Park Avenue South/Madison Square was the only submarket to record more than 1 million SF of activity, but the 1.17 million SF leased there this past year was 52% less than 2001's 2.41 million SF of activity. Negative net absorption improved market-wide, however, by 52% to 1.82 million SF in 2002 from 3.80 million SF in 2001. NoHo/SoHo was the sole Midtown South submarket to close the year with positive net absorption - a mere 10,000 SF. As a result, total availability increased to 13.2% in Midtown South at year end, up 23% from 11%. The largest increases in available supply were recorded in Chelsea (56%) the Flatiron District (41%) and Hudson Square/ Tribeca (also 4 1%). There also was some erosion in asking rents in Midtown South over the past year. All told, av erage asking rents decreased by 17% to $33.30 per SF at year end from $40.23 per SF one year earlier. NoHo/ SoHo saw the biggest decline, down 23% to $31.61 per SF.