Brokers: best yet to come.

Though real estate executives are not as shy as they used to be about the word "bubble," market researchers at New York's three major firms say that both the commercial leasing and the commercial sales market are doing extremely well.

Some note that the summer might have brought the expected slow-down in transaction activity, but all point to skyrocketing sales numbers and slowly rising rents as signs that the best is not yet over.

New York's sales volume up to date this year has been close to $20 billion--the largest ever seen in the city,--and the tight supply of product makes it likely that prices are going to continue to climb. In addition, investment sales brokers such as Cushman & Wakefield's Richard Baxter expect that some of the people who have bought two or three years ago are going to be putting their buildings back on the market.

"We see no signs of demand decreasing on the buyer's side," Baxter points out. "There are some new investors, including Russian and Israeli companies, that are entering the market on the development side and we've got some old line families who are interested in the class B and C buildings as they get converted to residential use in midtown. We are seeing demand increasing and a lack of product on the market, which will cause prices to rise."

According to Benjamin Friedland, vice president with CB Richard Ellis, there have been fewer sales in the second half of the summer because people have been out of town, but "since Labor Day, everything is up to full speed."

"The investment sales market continues to be very hot," Friedland says. "The average price paid for New York office buildings was $372 per s/f in the first half of 2005, more than double the national average. There is a lot of money that's looking to get into the market."

Peter Kozel, executive managing director of research and real estate strategies with Newmark, notes that people continue to pay top dollar for real estate because they realize that so far the investment has paid off. "There could be some event that causes dramatic change, but people who have been active investors are being vindicated by the market," Kozel says. "We've seen some increases in rent levels. Generally, the market is doing better, so it looks like they've made the right call."

Another reason real estate professionals expect the sales frenzy to continue is the fact that typical buyers--like pension plans and foreign investors--still have a lot of money to burn.

"Pension plans tended to be under-represented in real estate and now they are sort of like a huge ship increasing their allocation and, obviously, New York is a major market," Kozel explains. "There has been a little bit of a slowdown in the second half of the summer, but the indications are that it is going to pick up again."

And while the leasing market is still nowhere as robust as the sales side, Manhattan's vacancy rates have been slowly decreasing and rents are expected to continue to climb up. According to Kozel, one of the reasons is the fact that many of the deals signed at the end of the 1990's are reaching their end term, forcing companies to either renew or look for new space.

"Office leases tend to be somewhere between seven and 10 years in maturity and there was a lot of activity in the second half of the 1990's. So you are beginning to see a lot of companies beginning leasing activity," he says.

On the down side, the number of new entries into the market is still few and they tend to be smaller deals at 10,000 to 15,000 s/f of space.

"Generally, it's the New York-based financial services firms that are driving the market--they've accounted for about one third of all leasing activity this year," says Jim Delmonte, director of research with Cushman & Wakefield. "But the fundamentals are getting stronger. Large blocks of space are getting much, much tighter. Today, they are down to 10 and there is significant activity on those 10. And rents have been going up--for Manhattan, the average asking rent was over $41 for the first time in the last eight quarters."