Availability rate decline throughout the city.

Demand for quality office space in Midtown Manhattan reached new heights during 1999, spurring robust leasing activity and a continued drop in availability rates. With nearly 5 million square feet of space absorbed in Midtown in 1999, the market saw its availability rate drop well below its supply/demand equilibrium and reach a low of 7 percent.

Midtown's climbing asking rents is yet another example of this market's vitality. Market-wide, average Class A asking rents broke the $45 per square-foot mark, while the red-hot Park Avenue submarket saw Class A asking rents reach $57.25 per square-foot -a clear indication of a landlords' market. In addition, Midtown Manhattan has not experienced a meaningful increase in its availability rate in almost three years, while most of the prime space opportunities have already been spoken for and new development won't provide many new options in the near future.

While the last to feel the effects of the market recovery, Downtown Manhattan has exploded with activity over the past three years. During 1999, Downtown continued to post exceptional numbers both in terms of leasing (up 19 percent from a year ago) and average rents (now at $32.96 per square foot). The strong demand for office space has also led to a significant reduction in the market's available inventory. In fact, the Downtown market tightened even further in 1999, as its availability rate fell below the 11 percent mark.

Property values have also felt the results of a rejuvenated market, as prices for buildings of all types skyrocketed. In order to satisfy the tremendous demand for office space, owners are actively improving their portfolios. With the cost of renovating properties lower than the cost of new construction, conversions of Class B and C properties are becoming commonplace in the market.

One of the reasons for Downtown's success has been the support of the city and state governments and local corporations. The Mayor's Revitalization Plan, which went into affect in 1995, as well as the work by the Downtown Business Alliance, has helped Downtown reclaim its role as one of the City's premier 24-hour, 7-day live/work/play communities. For proof we can look at the success of Battery Park City and The World Trade Center. In the WTC's retail concourse, for example, upscale retailers like Coach, Limited Express, Tourneau and Warner Brothers have opened their doors to serve both the building's office component, as well as the growing Downtown residential community.

By virtue of the activity to date, predictions for early 2000 are extremely positive. In fact, the market should continue on its current pace, posting strong leasing activity and positive absorption in almost every segment. As the demand for quality office space by tenants continues to heat up, it is likely to spur even greater investment activity by both institutions and private investors.